What Is a Short Put?

A short put refers to when a trader opens an options trade by selling or writing a put option. The trader who buys the put option is long that option, and the trader who wrote that option is short.

The writer (short) of the put option receives the premium (option cost), and the profit on the trade is limited to that premium.

KEY TAKEAWAYS

• A short put is when a trader sells or writes a put option on security.

• The idea behind the short put is to profit from an increase in the stock's price by collecting the premium associated with a sale in a shot put.

• Consequently, a decline in price will incur losses for the option writer.

Basics of the Shot Put

A short put is also known as an uncovered put or a naked put. If an investor writes a put option, that investor is obligated to purchase shares of the underlying stock if the put option buyer exercises the option.

The short put holder could also face a substantial loss prior to the buyer exercising, or the option expiring if the price of the underlying falls below the strike price of the short put option.