This strategy can be super risky if you use leverage (margin loans) to have more stock exposure than you can afford to buy at any given time.
As long as you do not use margin loans or other forms of leverage, put selling is actually safer than buying the same 100 shares of stock outright because you are paid upfront for agreeing to buy shares at the price you find is attractive.
Please read my CVS example again. If you like this company and are willing to buy 100 shares of stock today, you can either buy the shares at the market and own them right away or sell a put option which expires in future weeks and get paid while you wait for your strike price (maybe think of it as a type of limit order) to either exercise.
At the end of these too scenarios you own 100 shares of stock: however the stock outright cost $76 per share ($7600) while the shares put to you only cost $75-$1.55 per share or $7345. Clearly the position where you have a lower cost basis is actually taking on less risk only $7345 verse $7600.
This is how I think about put selling. Hope this helps.
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Well, I have read it again but still don't understand how there isn't more risk selling naked puts. If the stock price falls, your losses rise until you cap when the share price is 0.
I see how you frame it that you can get paid and own the shares, but I might end up.owning them and immediately be underwater.in the trade. I guess that risk is the same as owning the shares unless you have trailing stop losses in place.
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