Short Put

Short put: sellers of put options hope the stock to go up and stay above the strike price so that buyers will have no opportunity to exercise their right to sell the stock. In this kind of option strategy sellers receive the premium.

When the buyers exercise the right to sell, put sellers are obliged to buy the stock at a predetermined price. If the spot price is lower than the strike price, the buyer can exercise his contract and the seller may suffer losses.

Short put is often used if you want to buy a stock at a more attractive price than the current one in the market. This opportunity appears when the short put option is exercised. Moreover, an additional bonus in this case is an option premium.

Put Short

If the put option was bought at a price, say $20 when the strike is $100, and the spot price starts falling, the option is in-the-money when the break-even point is reached (this mark is $80), then the buyer may exercise his contract that causes losses for the seller. The worst for him can happen when the price of underlying assets goes to zero. At the same time, the maximum profit is limited to the premium and can be received if the spot price exceeds the price mark of $100.