A short put is a type of strategy regarding the selling of a put option. The option itself is a security in its own right, as it can be purchased and sold.

Short Put Definition | Investopedia

If an investor writes a put option, the investor is obligated to purchase shares of the underlying stock if the put option holder exercises the option, or if the option expires in the money. A short put position is effectively a form of insurance, guarding the investor against losses beyond a certain point.

The higher the price rises, the more money the investor makes. The upper bound on the losses is the value of the stock. When an investor enters into a short put strategy, he is locking the price of an underlying security at the strike price and keeping the premium for writing the put option. Entering into a short put position is considered a risky strategy because an investor is bound by a profit limited to the premium received for selling the put option.

However, he is exposed to a higher potential loss only bounded by the strike price of the naked put option minus the premium received, because the underlying stock price can only go to zero.

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However, the investor does not have enough cash to purchase the underlying stock. To understand the basics of selling put options, see " Introduction to Put Writing. Dictionary Term Of The Day.

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Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. What is a 'Short Put' A short put is a type of strategy regarding the selling of a put option.

Short Put Mechanics A short put position is effectively a form of insurance, guarding the investor against losses beyond a certain point. Risk When an investor enters into a short put strategy, he is locking the price of an underlying security at the strike price and keeping the premium for writing the put option.

Short Put Option

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