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Short Naked Put

Analyzing the risk profile of a short naked put
Implied volatility has been declining. How does this affect the value of your short put?
It harms P/L
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It benefits P/L
Correct! Short options are positively impacted by declining implied volatility. When volatility contracts, extrinsic value decays, allowing option short-sellers to close their positions at cheaper prices.
It does not affect P/L
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It randomly affects P/L
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You sell a 35 strike put for $1.00. What is your max loss?
$35
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$1
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$100
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$3400
Correct! The maximum loss would occur if the value of the shares dropped to $0. Since you collected $1 for the $35 put, your break even is at $34. 100 shares times $34 is $3400.
You sell a 25∆ put. What are the odds this option expires OTM?
25%
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50%
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75%
Correct! A 25∆ put only has a 25% chance of expiring ITM. So it's probability of expiring OTM is the inverse: 100% - 25% = 75%.
100%
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Do short puts carry positive or negative delta?
Positive delta
Correct! Short puts are a bullish strategy. Bullish strategies carry positive delta.
Negative delta
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Neutral delta
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They can carry either one
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If you are assigned on a short put, what will that mean?
You must buy 100 shares at the strike price
Correct! If you are assigned on a short put, it means you are obligated to buy 100 shares at the strike price.
You have the option to buy 100 shares at the strike price
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You must sell 100 shares at the strike price
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You have the option to sell 100 shares at the strike price
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