Short Put Strategy
Sell a put option to collect premium when you're bullish or neutral on a stock.
What is a Short Put?
A Short Put (cash-secured put) involves selling a put option, collecting premium upfront. You profit if the stock stays above the strike. If assigned, you buy the stock at the strike — often used to acquire stock at a discount. Max loss occurs if stock goes to zero.
When to Use a Short Put
Use Short Puts when you're bullish or neutral and want to either collect premium OR buy stock at a lower price. Best in high IV (earnings aftermath) to collect inflated premium. Popular with the 'wheel strategy' approach.
Key Formulas
- Max Profit
- Premium received × 100
- Max Loss
- (Strike - Premium) × 100 (if stock goes to $0)
- Breakeven
- Strike price - Premium received
Example Trade
Sell 1 AAPL $180 Put for $2.50. Collect $250 upfront. Profit if AAPL stays above $177.50. Max loss $17,750 if AAPL hits $0.
Common Mistakes to Avoid
- Selling puts on stocks you don't want to own
- Not having cash set aside for assignment
- Selling too close to expiration (gamma risk)
- Rolling down too aggressively
Related Strategies
Frequently Asked Questions
What is a Short Put?
A Short Put (cash-secured put) involves selling a put option, collecting premium upfront. You profit if the stock stays above the strike. If assigned, you buy the stock at the strike — often used to acquire stock at a discount. Max loss occurs if stock goes to zero.
When should I use a Short Put?
Use Short Puts when you're bullish or neutral and want to either collect premium OR buy stock at a lower price. Best in high IV (earnings aftermath) to collect inflated premium. Popular with the 'wheel strategy' approach.
What is the maximum profit and loss for a Short Put?
Max profit: Premium received × 100. Max loss: (Strike - Premium) × 100 (if stock goes to $0).
What is the breakeven price for a Short Put?
Breakeven: Strike price - Premium received. Example trade: Sell 1 AAPL $180 Put for $2.50. Collect $250 upfront. Profit if AAPL stays above $177.50. Max loss $17,750 if AAPL hits $0.
What are common mistakes when trading a Short Put?
Common mistakes include: Selling puts on stocks you don't want to own; Not having cash set aside for assignment; Selling too close to expiration (gamma risk); Rolling down too aggressively.
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