Option Strategies
Module Units
- 1. Introduction
- 2. Why Trade Options?
- 3. Option Chain
- 4. Option Strategies
- 5. Options Buying Vs Option Selling
- 6. Long Call
- 7. Short Call
- 8. Long Put
- 9. Short Put
- 10. Long Call Vs Short Put
- 11. Long Put Vs Short Call
- 12. Bull Spread Strategy
- 13. Bear Spread Strategy
- 14. Call Ratio Back Spread Strategy
- 15. Put Ratio Back Spread Strategy
- 16. Hedging Strategy - Covered Call
- 17. Hedging Strategy – Protective Put
- 18. Collar Strategy
- 19. Straddle
- 20. Strangle
- 21. Strip Strategy
- 22. Strap Strategy
- 23. Butterfly Strategy
- 24. Modified Butterfly Strategy
- 25. Long Condor Strategy
- 26. Conclusion
Short Put
As we have learned a ‘Short Call’ earlier; now, we will discuss a ‘Short Put.’
A short put involves the selling of a put option. It is a slightly bullish and neutral strategy. A short put has limited profit potential, which is the premium received and unlimited risk. A short put strategy has a positive pay-out when there is an increase in the underlying stock or volatility contraction. It declines in value from a decline in the underlying stock or volatility expansion.
Below is the illustration of the payoff diagram of a Short Put Option:
The key incentive of selling a put is that you can profit under three scenarios:
- when the underlying stock rise,
- move sideways,
- or fall slightly
The probability of success in the trade is 2/3rd. An advantage of selling a naked put is that it can be structured to have a higher probability of success than trading the underlying stock or buying a put. A disadvantage to selling any option is that you have unlimited risk if the asset price falls and goes below the strike price.
A Put option seller has time on his side and with each passing day, premiums fall considering other factors don’t move much.
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