Option Strategies
Naked Put
Introduction
A Naked Put, also known as an uncovered put, consists of selling put Options without having a corresponding short position in the underlying security. It's called "naked" because you don't have any cover or protection in the form of a short position in the underlying asset, which exposes you to potentially unlimited risk. Naked puts aim to profit from the Option premium by selling puts. At any time for American Options or at expiration for European Options, if the stock moves above the strike price, you keep the premium. If the underlying price moves below the strike, the Option buyer can exercise the Options contract, which means you need sell the underlying at market price to fulfill your obligation to buy it at the strike price and keep the premium.
Implementation
Follow these steps to implement the naked put strategy:
- In the
initialize
method, set the start date, end date, starting cash, and Options universe. - In the
on_data
method, select the Option contract. - In the
on_data
method, place the orders.
def initialize(self) -> None: self.set_start_date(2014, 1, 1) self.set_end_date(2014, 3, 1) self.set_cash(100000) self.universe_settings.asynchronous = True option = self.add_option("IBM") self._symbol = option.symbol option.set_filter(lambda universe: universe.include_weeklys().naked_put(30, 0))
The naked_put
filter narrows the universe down to just the one contract you need to form a naked put.
def on_data(self, slice: Slice) -> None: if self.portfolio.invested: return chain = slice.option_chains.get(self._symbol) if not chain: return # Find ATM put with the farthest expiry expiry = max([x.expiry for x in chain]) put_contracts = sorted([x for x in chain if x.right == OptionRight.PUT and x.expiry == expiry], key=lambda x: abs(chain.underlying.price - x.strike)) if not put_contracts: return atm_put = put_contracts[0]
Approach A: Call the OptionStrategies.naked_put
method with the details of each leg and then pass the result to the buy
method.
naked_put = OptionStrategies.naked_put(self._symbol, atm_put.strike, expiry) self.buy(naked_put, 1)
Approach B: Call the market_order or limit_order method.
self.market_order(atm_put.symbol, -1)
Strategy Payoff
The payoff of the strategy is
PKT=(K−ST)+PT=(PK0−PKT)×m−feeThe following chart shows the payoff at expiration:

The maximum profit is PK0, which occurs when the underlying price is at or above the strike price of the put at expiration.
The maximum loss is K−PK0, which ocurrs when the underlying price drops to zero.
If the Option is American Option, there is a risk of early assignment on the contract you sell.
Example
The following table shows the price details of the assets in the algorithm:
Asset | Price ($) | Strike ($) |
---|---|---|
Put | 1.37 | 185.00 |
Underlying Equity at expiration | 190.01 | - |
Therefore, the payoff is
PKT=(K−ST)+=(185−190.01)+=0.0PT=(PK0−PKT)×m−fee=(1.37−0.0)×m−fee=1.37×100−1=136So, the strategy gains $136.
The following algorithm implements a naked put Option strategy:
class NakedPutAlgorithm(QCAlgorithm): def initialize(self) -> None: self.set_start_date(2014, 1, 1) self.set_end_date(2014, 3, 1) self.set_cash(100000) option = self.add_option("IBM") self.symbol = option.symbol option.set_filter(lambda universe: universe.include_weeklys().naked_put(30, 0)) self.put = None # use the underlying equity as the benchmark self.set_benchmark(self.symbol.underlying) def on_data(self, slice: Slice) -> None: if self.put and self.portfolio[self.put].invested: return chain = slice.option_chains.get(self.symbol) if not chain: return # Find ATM put with the farthest expiry expiry = max([x.expiry for x in chain]) put_contracts = sorted([x for x in chain if x.right == OptionRight.PUT and x.expiry == expiry], key=lambda x: abs(chain.underlying.price - x.strike)) if not put_contracts: return atm_put = put_contracts[0] naked_put = OptionStrategies.naked_put(self.symbol, atm_put.strike, expiry) self.buy(naked_put, 1) self.put = atm_put.symbol