Short put

Short put (naked put/uncovered put)

What is a short put?

A short put, or a short-term put, is a type of option that obliges the seller to buy stock from the holder of the option at a set price (strike price) within a limited timeframe.

Short put options can be used when you think the stock price is about to go up. By shorting a put, you receive an option premium, which is all the profit you can expect from this type of put option. You can also sell a short put if you do not have the money to purchase the underlying stock on your account. Such puts are called naked, or uncovered.

This trading strategy is quite risky as the stock price can go down. In this case you will be obliged to buy the stock at a price higher than the market price. So make sure you think your actions through before shorting a put.

Example of a short put

Let’s say the stock you are interested in is currently trading at $40. You would be much more willing to buy it at a lower price, so you sell a short put with the strike price of $35 for $3.

If the stock price stays above $35, the buyer will not exercise the put option and you will still have your option premium of $3.

But if the stock price falls below $35 and the buyer decides to sell it, you will be obliged to buy the stock at the higher strike price.

Short vs put

Short selling means selling the stock that you don’t own. To do this, you borrow the stock from a broker, sell it, and then buy it at a lower price. Shorting a put means selling your obligation to buy a stock you don’t own at a set price from someone who has bought such option. Even though both trading strategies involve selling, they are quite different. Short selling involves selling and then buying the stock while shorting a put may result in the purchase of the stock if the buyer of the put option decides to exercise it.

Between short selling and shorting puts, short selling is more profitable. With short puts your profit is limited to the premium you received for your option while with short selling your potential profits are unlimited. Both are also more profitable than simply buying the stock. However, these strategies are quite risky as prices can move in the direction unfavorable for the sellers (up for short selling and down for short puts) and result in huge losses.

Back

2022-07-21 • Updated

Frequently asked questions

  • How to start trading?

    If you are 18+ years old, you can join FBS and begin your FX journey. To trade, you need a brokerage account and sufficient knowledge on how assets behave in the financial markets. Start with studying the basics with our free educational materials and creating an FBS account. You may want to test the environment with virtual money with a Demo account. Once you are ready, enter the real market and trade to succeed.

  • How to open an FBS account?

    Click the 'Open account' button on our website and proceed to the Trader Area. Before you can start trading, pass a profile verification. Confirm your email and phone number, get your ID verified. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading.

  • How to withdraw the money you earned with FBS?

    The procedure is very straightforward. Go to the Withdrawal page on the website or the Finances section of the FBS Trader Area and access Withdrawal. You can get the earned money via the same payment system that you used for depositing. In case you funded the account via various methods, withdraw your profit via the same methods in the ratio according to the deposited sums.

Deposit with your local payment systems

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera