What Is Naked Put? Strategy, Risks and NIFTY Example
Learn how naked put works, understand its payoff and risks, and review an illustrative NIFTY options example.
# What Is Naked Put?
A naked Put is a short Put without a fully protective offsetting position. The seller receives premium but takes downside risk if the underlying falls.
How It Works
Assume NIFTY is 22,500 and a trader sells a 22,300 Put for 70 points. Expiry breakeven is 22,230. If NIFTY expires at 22,000, intrinsic value is 300 and loss before costs is 230 points.
Risk and Payoff
Maximum profit is the premium received. Loss can be substantial after a sharp fall. Index-option settlement differs from physical delivery of shares, so check the contract specifications. Consider gaps, implied volatility, margin increases, liquidity and slippage. A bull Put spread adds a lower-strike long Put to cap expiry risk based on the spread width and net credit.
Practical Checklist
Before placing a trade, calculate the payoff at several expiry prices using live premiums. Include lot size, brokerage, taxes, bid-ask spread and slippage. Define the maximum acceptable loss and the conditions that would invalidate the trade. Do not rely on premium received as evidence that a trade is safe.
Final Thoughts
A naked Put offers limited premium income with meaningful downside exposure. Calculate the risk and plan exits before entry.
For related background, see What Are Option Greeks?, What Is Implied Volatility? and What Is Option Premium?.
> Disclaimer: This article is for educational purposes only and is not investment advice. Options can cause substantial losses.
This article is for educational purposes only and does not constitute financial advice. Please consult a SEBI registered investment advisor before making any investment decisions.