Short Put


DEFINITION of 'Short Put'

A type of strategy regarding the selling of a put option. The option itself is a security in its own right, as it can be purchased and sold. Should the holder of the option believe that the price of the underlying security will increase before the contract’s expiry date, he may buy the underlying stock. Or he may sell the put option (hence “short put”), which requires him to buy the stock, should the put buyer demand he do so.


A short put position is effectively a form of insurance, guarding the investor against losses beyond a certain point. When the investor enters a short put position, the security’s price must rise in order for the strategy to turn a profit. Furthermore, the price must rise by at least the price of the put option (the “premium”). The higher the price rises, the more money the investor makes. Conversely, should the investor have initially erred and the security’s price then fall, the strategy would lose money. The upper bound on the losses is the value of the stock. 

When an investor enters into a short put strategy, he or she is locking the price of an underlying security at the strike price and keeping the premium for writing the put option. Entering into a short put position is considered a risky strategy because an investor is bound by a profit limited to the premium received for selling the put option, but exposed to a higher potential loss only bounded by the underlying security going to zero minus the premium received. 

To understand the basics of selling put options, see "Introduction To Put Writing."

  1. Crude Oil

    Crude oil is a naturally occurring, unrefined petroleum product ...
  2. Leg

    A leg is one component of a derivatives trading strategy, in ...
  3. Grant

    The issuance of an award, such as a stock option, to key employees ...
  4. Put-Call Parity

    A principle that defines the relationship between the price of ...
  5. Maturity

    The period of time for which a financial instrument remains outstanding. ...
  6. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
Related Articles
  1. Options & Futures

    Bear Put Spreads: A Roaring Alternative To Short Selling

    This strategy allows you to stop chasing losses when you're feeling bearish.
  2. Options & Futures

    Put-Call Parity And Arbitrage Opportunity

    Look at trades that are profitable when the value of corresponding puts and calls diverge.
  3. Options & Futures

    How To Sell Put Options To Benefit In Any Market

    As long as the underlying stocks are of companies you are happy to own, put selling can be a lucrative strategy.
  4. Options & Futures

    Put Option Basics

    Put option allow investors to hedge an investment they own or speculate in an investment they don't own. Find out more about this type of option and how it can work in an investor's favor.
  5. Options & Futures

    Manage Risk With Trailing Stops And Protective Put Options

    Using the right strategy can lower the risk of failure and protect your profits.
  6. Options & Futures

    Forecasting Market Direction With Put/Call Ratios

    Options are not only trading instruments but also predictive tools that can help us gauge the feelings of traders.
  7. Markets

    Hedging With Puts And Calls

    This trading strategy can reduce your risk - but only if you use it effectively.
  8. Options & Futures

    Profiting From Stock Declines: Bear Put Spread Vs. Long Put

    If you're bearish, you should compare the risk/reward characteristics of these two strategies.
  9. Credit & Loans

    Pre-Qualified Vs. Pre-Approved - What's The Difference?

    These terms may sound the same, but they mean very different things for homebuyers.
  10. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  1. What risks should I consider taking a short put position?

    The risks to consider before taking a short put position are the odds of sustained weakness in the asset price and a spike ... Read Full Answer >>
  2. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  3. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  4. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  5. How do I determine the breakeven point for a short put?

    The breakeven point for a short put is the strike price of the option minus the premium. Selling puts is a way for traders ... Read Full Answer >>
  6. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center