Selling Naked Puts: Bad for Your Portfolio?

Maybe so, according to Steven Sears of Barron’s. He put out a piece last week on options strategies and how retail investors can be duped into risky strategies by shucksters. One of the strategies he implicitly poo-poohs is selling naked puts:

“It gets better. He said he even heard one claim a few years ago that investors could make 16% a month selling “naked options,” or contracts without an associated stock.The name of the educators that make these claims is not important…”

While I have not talked about it in the past, any reader perusing my portfolio will notice a fair amount of naked put positions. It is my assertion that a naked put component combined with a value-investing perspective and fairly rigorous research is a HIGHLY EFFECTIVE AND PROFITABLE STRATEGY which can be implemented easily by the small retail investor to smooth out the returns generated in a portfolio.

This component of my portfolio averages an annualized 30% return over a holding period of 76 days and I have not yet had a stock put to me, even when I wanted it (HRZ). There are definite risks and drawbacks to this strategy (as with anything), but considering that I implemented this strategy in Sept 2007 and the extreme market volatility (well, mostly down) since then, I have concluded that this strategy is sound if implemented with the correct attitude toward risk and with the proper research. Keep in mind, though, there are definite risks and drawbacks to this strategy (as with anything).

I will probably go into this strategy in more detail at a later date but until then, remember that what works for me might not work for you and vice versa. But don’t accept blanket generalizations by supposed experts as gospel (ie. selling naked puts is bad or SPACs are fraud vehicles, etc.). Few things in life are that black & white. Consult a financial advisor if you think you need the help and as always, YMMV.

More on this topic (What's this?)
Lampert and The Prince
Sears Brand Bonds
Eddie Lampert = Warren Buffett?
Read more on Sears Holdings at Wikinvest

Leave a Reply

-->