What is a short put?
In one line: A short put is the position you hold after selling a put option: you keep the premium and must buy 100 shares at the strike if the buyer exercises.
How it works
Every Put option has two sides. The buyer pays for the right to sell 100 shares at the strike. The seller takes the money and the duty to buy them. "Short" is the trader's word for the selling side, so a short put means you sold a put and the position is open.
You open it with a Sell to open order. The premium lands in your account the same day. From then on, three things can end it: the put expires, you buy it back with a Buy to close order, or you're assigned and the shares arrive.
Whether it's "cash-secured" or "naked" depends on what's behind it. Same contract either way. The short put is the first turn of the wheel strategy.
An example (hypothetical)
XYZ trades at $50. You sell one 30-day $45 put for $1.00 and collect $100. You keep $4,500 set aside (an illustration, not a trade idea).
| XYZ at expiry | What the buyer does | Shares | Premium | Total |
|---|---|---|---|---|
| $35 | Exercises; you buy 100 at $45 | −$1,000 | +$100 | −$900 |
| $40 | Exercises | −$500 | +$100 | −$400 |
| $44 | Exercises | −$100 | +$100 | $0 |
| $45 | Usually lets it expire | $0 | +$100 | +$100 |
| $60 | Lets it expire | — | +$100 | +$100 |
Above $45 you keep $100 and nothing else happens. Below $44 you lose, and the loss grows with every dollar the stock falls. Max loss $4,400 at zero. A math example, not a promise.
Before expiry, the put's price moves against you when the stock falls. At $40 with two weeks left it might cost $5.50 to buy back, a $450 loss if you close rather than wait for assignment.
Why it matters for sellers
A short put is how a seller gets paid to wait for a price. The buyer is paying you for insurance on their shares. If the stock stays up, you keep the fee. If it falls, you pay the claim by buying the shares.
Two things follow. First, the premium is the most you can make, so one bad assignment can erase many good months. Second, the shares you might end up with are the real position. Pick the stock as if you were buying it today, because you might be.
The seller's main friends are time and a quiet stock. Each day the put sits out of the money, its Extrinsic value melts a little. See theta decay explained.
Questions
Is a short put bullish or bearish?
Mildly bullish, or neutral. You make the full premium if the stock stays flat or rises. You lose if it falls past the strike by more than the premium.
What's the max loss on a short put?
The strike times 100, minus the premium. The stock would have to go to zero. On a $45 put sold for $1.00, that's $4,400.
Can I get out of a short put early?
Yes. Buy the same put back. If it costs less than you collected, you keep the difference. If the stock has dropped, it costs more and you take the loss.
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