I will assume most of you have never sold a naked Put option and already dont understand how this is actually a Fixed income Contract.
The best way for me to explain it is to explain a Trade I made yesterday on FMG Fortescue
Yesterday FMG was trading at about $4.85c
I sold a Naked Put option at $4.00 for June 29th expiry for a 10c fixed income.
My risk is that I would have to buy FMG at $4.00 on the 29th of June if FMG is trading below $4.00
The fixed income componant is that regardless of what FMG does in price, I keep the Fixed Income of 10c.
10c gained on a net exposure to FMG of $3.90. = 2.5% return in 6.5 weeks.
It equates to a 20% per annum rate of return.
My risk is that If Im assigned and buy FMG on 29th of June, FMG will owe me $3.90c
In such case as I do have to buy FMG, I would then sell a Call Option much closer to the stricke price of $4.00 and get and even higher Rate of return as fixed income.
