45 lines
1.4 KiB
Plaintext
45 lines
1.4 KiB
Plaintext
398 Part Ill: Put Option Strategies
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The collateral requirement for the naked put write is the same as that for any
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naked equity option: 20% of the stock price, plus the option price, less any out-of
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the-money amount, with an absolute minimum requirement of 15% of the stock
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price.
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Collateral Requirement - Naked Put
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20% of stock price (.20 x 500 x $50)
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Plus option premium
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Less out-of-the-money amount
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Total collateral requirement
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$5,000
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1,750
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0
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$6,750
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Note that the actual premium received by the naked put seller is $1,750 less com
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missions of $100, for example, or $1,650. This net premium could be used to reduce
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the total collateral requirement.
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Now one can compare the profitability of the two investments:
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Return If Stock Over 50 at Expiration
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Stock sale {500 @ 50)
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Less stock commission
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Plus dividends earned until expiration
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Less net investment
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Net profit if exercised
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Net put premium received
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Dividends received
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Net profit
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Covered Write
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$25,000
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300
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+ 1,000
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- 21,150
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$ 4,55_0
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Naked Put Sole
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$1,650
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0
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$1,650
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Now the returns can be compared, if XYZ is over 50 at expiration of the LEAPS:
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Return if XYZ over 50
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(net profit/net investment)
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Naked put sale: 24.4%
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Covered write: 21 .5%
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The naked put write has a better rate of return, even before the following fact
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is considered. The strategist who is using the naked put write does not have to spend
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the $6,750 collateral requirement in the form of cash. That money can be kept in a |