"Closing Naked Put Before Expiration"

Select Your Language... Translate to Chinese Translate to Spanish Translate to French Translate to German Translate to Italian Translate to Portuguese

"Can I Close Naked Put Before Expiration?"

"I have a naked put that is making money right now but I fear my stock will drop before expiration to my strike price. Can I buy to close the put and keep my gains?"
Asked By Matt on 22 March 2011

Answered by Mr. OppiE

Hi Matt,

In order to reap the full profit of a short options position, the position must be held all the way to expiration. However in options trading, most veteran options traders don't really do that. Most veteran options traders would be glad to close out a naked write position when 80% or 90% of the maximum profit is attained in order not to risk losing it all and exposing one to unlimited risk.

As such, yes, it is possible and recommended for you to close out your naked put write position before expiration if you think the profit so far has met your trading objective and that the stock may actually reverse course and go lower than the strike price of the put options you wrote. This will also free you and your trading capital from the unlimited risk potential of a naked put write.


To close out a naked put write before expiration, all you have to do is to BUY TO CLOSE the position. The Buy To Close order closes out that naked put write position by buying back the position you wrote with cash. Since the position is profitable, you would be able to buy it back at a lower price than you sold it for and reap the difference as profit in your account.

Assuming you wrote one contract of naked put write at $1.50, $150 will be deposited into your trading account immediately. A few days later, the underlying stock rallied and the value of the put options you wrote dropped from $1.50 to $0.20 and you think it is a good time to take profit. Using the Buy To Close order, you buy back that one contract of put options at $0.20 for a total of $20 and pocket the remaining $130 as profit.

There is one more drawback though with closing your naked put write before expiration apart from not being able to make the 100% profit and that is the fact that you will incur additional commission expense for manually closing out the position rather than let it expire out of the money on its own. This will inevitably eat into your profit margin but it might still be worth it for not exposing yourself to anymore risk.


In conclusion, you can close out a naked put before expiration whether it is profitable or not simply by using the Buy To Close order.