Sunday, February 1, 2015

Short put

Short Puts  are a bullish to neutral strategy.

When you short a put option, you receive an upfront premium from the buyer. You also could be obligated to buy shares of the underlying stock.

Selling puts are often seen as a way to make money in a neutral market. Having chosen the strike and expiration date of an options contract, your sale is a credit and adds cash to your account. If the short put is "cash secured," which is often prudent, it means you to have enough cash in your account to purchase the stock at the designated strike. For instance, if you sold a 30 put for $1, you would have $3,000 cash in your account, in order to buy 100 shares of stock for $30 if assigned. (Note: Your broker may require short puts to be cash secured, or may have different margin requirements.)

  • They can generate extra income in your account.
  • The risk is the same as owning the stock, minus the credit for selling the put.
  • They can be a good way to acquire stock.
  • They are equivalent to covered calls, but may offer some advantages.
  • The maximum gain is capped, while the risk is the same as owning the stock.
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