Is Selling Naked Puts a Bad Thing?

Selling naked puts is a way for you to get a steady stream of cash flow in the stock market. But how good of a strategy is it exactly? nnWhen you sell a naked put what you are doing is selling someone else the right to sell a stock to you at a set price in the future. So if you sell a $50 put on a stock you assume the risk of having to buy the stock at $50 at some point in the future before the put expires. nnSo is it risky, well if you do it right it is no more risky than anything else. But to lessen the risk you must remember the following.nn1. Don’t Sell puts on stocks that you do not want to own.nnAny time you sell a naked put it should be on a stock that you would not mind buying and holding onto. One thing that is almost certain is that if you keep selling naked puts you will eventually buy the stocks that you are selling them on. nn2. Don’t sell puts on stocks that you cannot afford to buynnIf you sell a put to buy 100 shares of a stock at $50 you had better have $5,000 to buy the stock in the future, just in case. If you only have say $2000 then you could be in for a huge loss if the stock does turn against you. Always keeping enough money to buy the stock if everything turns out against you is essential. nn3. Don’t sell puts on too many stocksnnThe same thing goes here. If the market has a bad month chances are that either all of most of the puts that you sell will be exercised. Just to be on the safe side it is better to be able to cover being put to all of your positions if you need to.nnFor more on selling naked puts visit http://www.stocks-simplified.com/selling_puts.html nnFor more on naked puts visit http://www.stocks-simplified.com/naked_put.htmln