An options trading strategy which involves the selling of put options without shorting the shares of the underlying stock. This bullish strategy particularly fits investors who prefer to keep stocks in their portfolios, rather than dispose of them. A holder can make consistent gains from ongoing collection of premiums. However, this strategy may result in large losses if bullish expectations proved to be off the mark.

In other words, it has a limited profit potential (premiums received) but unlimited upside risk. The naked put writer sells slightly out-of-the-money puts month after month, collecting premiums as long as the stock price of the underlying remains above the put strike price at expiration. The maximum profit of such a strategy can be achieved when the current price of the underlying is higher than, or at least equal to the strike price of the short put:

Profit = premiums received – commissions paid

The maximum loss is unlimited and usually occurs when the current price of the underlying is lower than the strike price of the short put minus the premiums received, that is:

Loss = strike price of short put – price of underlying – premium Received + commissions paid

This strategy is also known as uncovered put writing, naked put write or cash secured put.