Selling Cash-Secured and Naked Puts
The next two strategies, selling cash-secured puts and selling naked puts, are often misunderstood but are extremely useful. If you want a strategy that allows you to buy a stock at a discount while receiving income, then you should look at these strategies.
The trades are identical, but with cash-secured puts, you must have enough collateral set aside to pay for the stock if assigned. When you sell naked puts, however, you only need enough collateral to meet margin requirements. Selling cash-secured puts is a Level 2 strategy, while selling naked puts is Level 4, primarily because it requires using margin.
What It Means to Sell Cash-Secured Puts
Let’s say that you are interested in buying stock but below ...