Short Put options strategy
A short put collects premium by selling a put option, profiting when the underlying stays above the strike. It is often used to acquire stock at a discount.
How the short put is built
Sell 1 put option at a chosen strike. Example: sell the 200 put for a premium of 8.
Profit and loss at expiration
The expiration payoff is calculated as: Profit = premium − max(K − S, 0).
- Maximum profit
- Limited to the premium received.
- Maximum loss
- Substantial — up to strike − premium if the underlying falls to zero.
- Breakeven
- Strike − premium. In the example, 192.
Worked example
Selling the 200 put for 8, at an expiration price of 210 the put expires worthless and you keep the full $8 per share.
When to use it
Use a cash-secured short put when you are willing to buy the stock at the strike and want to be paid premium while you wait. It expresses a neutral-to-bullish view.
Managing the risk
A sharp decline can create large losses. Secure the position with enough cash to buy the shares if assigned.
Frequently asked questions
What is a cash-secured put?
A short put fully backed by cash to buy the shares if assigned, turning the trade into a disciplined way to enter a position.
When would I be assigned on a short put?
If the underlying is below the strike at expiration, you may be assigned and required to buy the shares at the strike.
Model this strategy
Open the free OptCurve calculator to plot the short put payoff, mark breakevens, and overlay it with other strategies.
Open the P&L calculator