What is Short Put Option Strategy?

• Short Put option is a simple but risky strategy & hence qualified as an advanced strategy. Short Put or Selling Put is recommended when the price of the underlying asset is expected to rise & the stock is not expected to fall further and remain sideways. Generally, we expect the price to stay above the sold strike price.

When to Execute?

• Short put can be implemented when we have bullish biasness, or expecting stock to stay range with expectation that it will not fall below the sold strike price. This strategy holds undefined risk where we can lose an undefined amount if stock continues to fall below the sold strike price. Short Put gain will be equivalent to the premium received.

What is the Trade?

• Under Short Put, we can sell any strike price, irrespective of it being ITM, ATM, OTM. When we are selling OTM Put, we are expecting stock to move up so that OTM Put becomes worthless and we earn a premium. Selling ITM Put, indicates extreme bullish biasness.

What is the Trade?

• Under Short Put, we can sell any strike price, irrespective of it being ITM, ATM, OTM. When we are selling OTM Put, we are expecting stock to move up so that OTM Put becomes worthless and we earn a premium. Selling ITM Put, indicates extreme bullish biasness.

Breakeven Point

• Break Even of Short Put = Strike Price - Premium Received.

What will be maximum profit?

• Max profit for Short Put is the equal to premium received.

What will be maximum loss?

• Short Put exposes you to uncapped risk, potential loss could be heavy in case the directional momentum is reversed.

What are the advantages?

• Profits from rising or range bound stocks. It’s an Income strategy. Helps to generate income if the stock fails to move below put strike. Idle in a scenario when one is ready to buy the stock in correction if it falls to put strike.

What are the disadvantages?

• Uncapped risk. If the stocks fall below short Put strike, undefined risk can arise.

Example for Short Put:

• Nifty future price is 15500. A Short Put can be devised by selling one lot of 15500 PE (ATM) @ 200. Net Premium Paid or Received = Rs. (+200). Uncapped Loss will if market started trading below at 15500 - 200 = 15200, Max premium will be earned if underlying stays above the strike i.e., 15500.