Naked Put Options Writing

The Coca-Cola Company (KO) 40.22 (15 November 2013)

Put Options Expire at close Friday, January 15, 2016 Strike Symbol Last Chg Bid Ask Vol Open Int 20.00 KO160115P00020000 0.32 0.00 0.28 0.31 50 92 23.00 KO160115P00023000 0.49 0.00 0.46 0.50 40 162 25.00 KO160115P00025000 0.65 0.05 0.64 0.69 1 268 28.00 KO160115P00028000 1.12 0.00 1.05 1.11 5 511 30.00 KO160115P00030000 1.45 0.00 1.44 1.50 2 609 33.00 KO160115P00033000 2.25 0.00 2.23 2.32 3 715 35.00 KO160115P00035000 3.00 0.05 2.92 3.05 15 1,402 37.00 KO160115P00037000 3.87 0.07 3.80 3.90 20 1,403 40.00 KO160115P00040000 5.40 0.00 5.30 5.45 3 220 42.00 KO160115P00042000 7.33 0.00 6.50 6.70 1 69 45.00 KO160115P00045000 8.85 0.00 8.60 8.75 2 299 47.00 KO160115P00047000 12.30 0.00 10.10 10.30 38 38 50.00 KO160115P00050000 14.80 0.00 12.60 12.80 51 51 55.00 KO160115P00055000 17.10 0.00 17.05 17.25 80 1,086

Sell one contract of Jan 2016 30 Put for a premium of 1.45 (x 100) = 145

Return on Investment (ROI) for one contract = 145 / 300 (broker requires capital tie-in of 10% of strike price) =  48.33% from now until 15 January 2016 if KO stays above 30.00 at expiration.

If KO falls below 30 at expiration, put options seller is obligated to buy KO at cheaper price of 30 per share instead of 40.22 per share at the moment. This is in addition to 1.45 premium received. So the nett purchase price for KO would be 28.55 per share. A whopping 29% discount from current market price!

Or the put options seller can buy back and close its naked put position prior to expiration from having to take delivery of KO shares at 30 each if the seller predicts KO will drop below 30 at expiration.