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Selling Short Put Options.
By selling a put option, you are giving an option
holder the right to sell an underlying stock or index at a particular strike
price. Option sellers have obligations. Buying a put option requires the payment
of a premium. The seller of the option gets to keep this premium as a gain if
the option expires worthless. A trader who sells put options (also called the
put writer) believes the market will rise.
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In order to make money on a short put sale,
the price of the underlying security must stay above the put strike at
expiration. The maximum profit the put writer can expect to make is limited
to the credit received for the sale of the put (the premium).
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Should the price of the security fall below
the short put strike at expiration, the put may be assigned to the option
holder who may then choose to exercise it. If the put holder decides to
exercise the option, the put seller is obligated to buy the underlying stock
or index at the strike price.
In a flat to rising market, written puts (the
selling short of put options) can provide a trader with extra income. If at
expiry the price of the underlying security remains above the strike price of
the put option, the put will expire worthless; a put seller will benefit by
keeping the entire premium received when the option was sold.
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Uncovered SPY Options
Signals
Past 3 Months |
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+329%
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-0%
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Our
Signals |
Buy
& Hold |
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As of 7/4/2009 |
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