Dislikedonly downside to writing uncovered puts is this obviously: Unlimited downside risk with little downside protection While the premium collected can cushion a slight drop in the underlying price, loss resulting from a catastrophic drop in the price of the underlying can be huge. The formula for calculating loss is given below: Maximum Loss = Unlimited Loss Occurs When Price of Underlying < Strike Price of Short Put Premium Received Loss = Strike Price of Short Put Price of Underlying Premium received...Ignored
Example:
Stock trading @ $30.
Sell $28 put for $1.50
Maximum loss is $2,650 if stock goes to zero.
If you sell naked calls then the loss is unlimited because there's not limit to how high a stock price can go. If you sell naked puts the price can only go to zero.