All option trading involves risk. Put option trading designed to take outright directional positions may be more difficult than similar call option trading. There really aren't any differences in the amount of risk borne when using a traditional, online or direct access broker. Direct access brokers may be faster.

There are standardized put options for thousands of stocks traded at the Chicago Board Options Exchange (CBOE) and put options for futures traded at the Chicago Mercantile Exchange (CME). Options and futures are both types of derivative contracts. Other over-the-counter (OTC) option contracts are available as well.

Different types of options market participants face different types of risks. There are option buyers, option sellers, covered option writers and naked option writers.

Put option buyers face the risk that the underlying security won't behave as expected and their premiums could lose all of their time values. If the price in the market is above the strike price at expiration the option will expire, worthless. Losing the entire premium is a common occurrence in out-of-the-money put option buying. Buying in-the-money puts helps reduce a portion of this risk. An option seller is merely someone who already owns a put option selling it. Option sellers are different from option writers.

Covered option writers hold a qualifying short position. They sell options on the positions they hold. Those who write puts with out-of-the-money strike prices face the risk that the price of the underlying asset could fall below the strike price and their counterparty could exercise the option. They may have the short position called away.

Naked option writers face all the risks faced by covered option writers with the added risk of the necessity of entering a short position losing value quickly in the open market in order to stop losses from mounting in losing naked option obligations. Naked put option sellers write options for underlying positions which they do not posses, gambling that they will expire out-of-the-money, enabling the sellers to pocket the premiums collected. This can be profitable for a time, but often ends in a large loss, which wipes out most or all accumulated profits.

  1. How do you trade put options on E*TRADE?

    Learn all about put option trading at E*TRADE. Explore margin accounts and become familiar with the different types of option ... Read Answer >>
  2. Does the seller (the writer) of an option determine the details of the option contract?

    The quick answer is yes and no. It all depends on where the option is traded. An option contract is an agreement between ... Read Answer >>
  3. When does one sell a put option, and when does one sell a call option?

    An investor would sell a put option if her outlook on the underlying was bullish, and would sell a call option if her outlook ... Read Answer >>
  4. Should I buy options that are in the money or out of the money?

    Choosing which specific option to buy can often be a complicated process, and there are literally hundreds of optionable ... Read Answer >>
  5. What is the difference between open interest and volume?

    Learn more about options, what options' volume and open interest are and the difference between volume and open interest ... Read Answer >>
Related Articles
  1. Trading

    Options Hazards That Can Bruise Your Portfolio

    Learn the top three risks and how they can affect you on either side of an options trade.
  2. Trading

    Getting Acquainted With Options Trading

    Learn more about stock options, including some basic terminology and the source of profits.
  3. Investing

    Why Options Trading Is Not for the Faint of Heart

    Trading options is not easy and should only be done under the guidance of a professional.
  4. Trading

    Three Ways to Profit Using Put Options

    A brief overview of how to profit from using put options in your portfolio.
  5. Trading

    The Basics of Options Profitability

    The adage "know thyself"--and thy risk tolerance, thy underlying, and thy markets--applies to options trading if you want it to do it profitably.
  6. Trading

    Options Strategies for Your Portfolio to Make Money Regularly

    Discover the option-writing strategies that can deliver consistent income, including the use of put options instead of limit orders, and maximizing premiums.
  7. Trading

    Options Pricing

    Options are valued in a variety of different ways. Learn about how options are priced with this tutorial.
  1. Option

    A financial derivative that represents a contract sold by one ...
  2. Put Option

    A put options is an option contract giving the owner the right, ...
  3. Naked Call

    A naked call is an options strategy in which the investor writes ...
  4. Back Fee

    A payment made to the writer of a compound option in the case ...
  5. Option Premium

    1. The income received by an investor who sells or "writes" an ...
  6. Put To Seller

    The exercise of a put option. Put to seller would usually occur ...
Hot Definitions
  1. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  2. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  3. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  4. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  5. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  6. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
Trading Center