Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks

Deep-in-the-Money Put

A short deep-in-the-money naked put will have a delta very close to one. This makes this position a viable substitute for stock. As the stock moves up in price, this position will capture the move almost dollar for dollar, until the stock price nears the strike price of the short put. An attractive feature of this stock surrogate is the large amount of cash brought into your brokerage account from the sale of the very expensive put. This cash earns interest as it sits in your account.

This naked put position will require margin in your brokerage account, but still should not tie up nearly as much capital as owning the real stock. The main disadvantage to this stock substitute is the possibility of an early assignment. Even ...