STOCKS TO BUY: We have identified several stocks that can potentially TRIPLE. Learn more!

New Fund Offers Cash-Secured Naked Put Options

Stock quotes in this article: HVPW, AAPL, NFLX, GMCR, BBY 

In an up market, selling puts usually works very well. The next time there is a large decline though, the fund could get hit very hard. Remember that the fund sells puts in two-month increments.

As an example, in one two-month run from August 2008 to October 2008, Apple (AAPL) dropped from $175 to $100. With the stock at $175, the fund, if it had existed in 2008, might have sold puts with a $150 strike price, which at expiration would have worked out to a $50 per share loss. That loss would have negated one payment entirely and taken a bite from the subsequent payment.

(Keep in mind that was just one stock. In late 2008, it is likely that the majority of any group of 20 volatile stocks would have had large losses which could have wiped out many payments.)


Actual names in the fund currently include Netflix (NFLX), Green Mountain Coffee Roasters (GMCR) and Best Buy (BBY), which speaks to how volatile the underlying stocks are.

HVPW is not a bad fund, but it would likely not be a name to hold in the face of the next bear market.

At the time of publication, the author had no position in any of the holdings mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
TRY IT FREE

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
TRY IT FREE
New! $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
TRY IT FREE

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
TRY IT FREE

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
TRY IT FREE

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass + 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
TRY IT FREE

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 15,112.19 -206.04 -1.35%
NASDAQ 3,443.20 -38.98 -1.12%
S&P 500 1,628.93 -22.88 -1.39%
US 10 Yr 2.311% +0.129

Brokerage Partners

Advertising Partners
Special Features

Free Newsletters from TheStreet

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

We respect your privacy. Manage Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs