Dykstra: Limiting Downside Risk

Selling an option as an opening order without owning the underlying asset is termed "naked call writing." This is a high-risk strategy because you are guaranteeing to sell the stock to the contract buyer. If someone exercises the option, you will have to buy it, regardless of the stock price. Your risk in this trade is unlimited. No matter how high the stock goes, you may have to buy it and sell it at the strike price in the option contract.

My DITM options trading system, which you can learn about through my Nails on the Numbers newsletter, has given me a winning streak of 94-0 with my payout this week from my call on Corning(GLW Quote). Other recent wins include Cisco(CSCO Quote), Texas Instruments(TXN Quote), Microsoft(MSFT Quote), Halliburton(HAL Quote), Garmin(GRMN Quote), Dow Chemical(DOW Quote) and Applied Materials(AMAT Quote).

Lenny Dykstra manages Nails on the Numbers, a subscription service sold by TheStreet.com. Mr. Dykstra is 94-0 in his options picks. Click here for a free trial to Nails on the Numbers. Mr. Dykstra writes regularly about options trades for TheStreet.com.