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 basics of the short puta 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 short put mechanicsa short put occurs if a trade is opened by selling a put for this action the writer seller receives a premium for writing an option the writer s profit on the option is limited to that premium received initiating an option trade to open a position by selling a put is different than buying an option and then selling it in the latter the sell order is used to close a position and lock in a profit or loss in the former the sell writing is opening the put position if a trader initiates a short put they likely believe the price of the underlying will stay above the strike price of the written put if the price of the underlying stays above the strike price of the put option the option will expire worthless and the writer gets to keep the premium if the price of the underlying falls below the strike price the writer faces potential losses some traders use a short put to buy the underlying security for example assume you want to buy a stock at 25 but it currently trades at 27 selling a put option with a strike of 25 means if the price falls below 25 you will be required to buy that stock at 25 which you wanted to do anyway the benefit is that you received a premium for writing the option if you received a 1 premium for writing the option then you have effectively reduced your purchase price to 24 if the price of the underlying doesn t drop below 25 you still keep the 1 premium image by sabrina jiang investopedia 2020risks of selling putsthe profit on a short put is limited to the premium received but the risk can be significant when writing a put the writer is required to buy the underlying at the strike price if the price of the underlying falls below the strike price the put writer could face a significant loss for example if the put strike price is 25 and the price of the underlying falls to 20 the put writer is facing a loss of 5 per share less the premium received they can close out the option trade buy an option to offset the short to realize the loss or let the option expire which will cause the option to be exercised and the put writer will own the underlying at 25 if the option is exercised and the writer needs to buy the shares this will require an additional cash outlay in this case for every short put contract the trader will need to buy 2 500 worth of stock 25 x 100 shares short put exampleassume an investor is bullish on hypothetical stock xyz corporation which is currently trading at 30 per share the investor believes the stock will steadily rise to 40 over the next several months the trader could buy shares but this would require 3 000 in capital to buy 100 shares writing a put option generates income immediately but could create a loss later on if the stock price falls as could buying the shares the investor writes one put option with a strike price of 32 50 expiring in three months at 5 50 therefore the maximum gain is limited to 550 5 50 x 100 shares which occurs if the stock closes at 32 5 or higher at expiration the maximum loss is 2 700 or 32 50 5 50 x 100 shares the maximum loss occurs if the underlying falls to zero and the put writer is assigned to buy the shares at 32 50 the maximum loss is partially offset by the premium received from selling the option 