What is a short put option?

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.

What does selling short a naked put mean?

Selling short a naked put means that the option seller does not hold a market position in the underlying asset that can serve as a hedge against potential losses from the option sale. In contrast, a short put position may be covered by either selling short the underlying stock, by purchasing a put option, or by selling a call option on the stock.

What are put options & how do they work?

This method also may be known as selling short, shorting, and going short. Traders and savvy investors who use put options also bet that the value of an asset will decline in the future and state a price and timeframe in which they will sell this asset.

What does short a covered put mean?

A trader who sells a put option employing such a strategy is said to be short a covered put. As previously noted, investors utilizing short put options do so with the expectation that the underlying asset’s price will either remain above the option strike price or at least stay the same as the strike price.