← Strategy LabLesson 4 · 3:47
Short put
Summary
Use a short put when you think the stock will rise, stay flat or dip only a little, and you accept carrying a fall all the way to zero. You sell the $100 put for $3.41 a share, so $341 is the most you can make, and if XYZ went to zero you would lose $9,659. You break even at $96.59 on the last day.
Key terms
- short put
- Selling a put option, collecting the premium now in return for having to buy 100 shares at the strike if asked.
- assignment
- When a buyer exercises and you, as the seller of that option, must deliver.
- margin
- Money your broker holds against what a sold position could lose.
- premium collected
- break-even
- The stock price on the last day where you neither make nor lose money: strike plus premium for a call, strike minus premium for a put.
Check yourself
Answer each question to see why the right answer is right.
1. You sell the XYZ $100 put for $3.41 a share. What is the most you can make?
2. Where does the short put break even on the last day?
3. XYZ ends at $90 on the last day. What is your result on the short put?
4. If XYZ went all the way to zero, how much would the short put lose?
5. XYZ ends below $100 and the put is assigned to you. What must you do?
Finished the video and the quiz? .