Meaning of short put option
The risk when purchasing a put is always that the put premium will decline in value and will expire worthless. The price of the premium is always the maximum possible loss for a long put. For a short put, the underlying asset technically has the possibility of going to zero. Although this means that the maximum loss is not unlimited, the maximum loss is severe.
Consequently, this means the maximum profit for a long put is very substantial. What are Put Options? A put option is a financial contract that gives the buyer the right, but not the What are Call Options? A call option is a financial contract that gives the buyer the right, but not the Before you jump into the complex world of options trading, there are a couple of things you need to know Your directional bias concerning the underlying is bullish, as the option you own increases in price when the price of the underlying stock rises.
When you sell a call option with the intention to buy it back later for a lower price, you have a short call position. Your directional bias concerning the underlying stock is bearish, as the underlying stock going down makes the option you want to buy back cheaper, which makes you a profit. When you sell a put option with the intention to buy it back later for a lower price, you have a short put position.
Your directional bias concerning the underlying is bullish, as the underlying stock going up makes the option you want to buy back cheaper, which makes you a profit. Of the four basic option positions, long call and short put are bullish trades, while long put and short call are bearish trades. Whenever you buy and own something, you are long.
You want the security you have bought to increase in price, so you can sell it later for a higher price and make a profit. Whenever you sell something and hope you will later buy it back for a lower price, you are short.
The deciding factor for the long vs. It is useful to get familiar with the right terminology as early as possible. Assuming that you want to learn as much about options as possible in order to become competitive and survive in the markets, you will probably encounter other materials and books about options. Knowing what all the basic terms mean will be necessary for you to understand what it is all about. For example, when dealing with option spreads and more complicated combinations of option positions, you will see terms like bull call spread , bear call spread , or bull put spread , which all sound similar, but as you might expect they have significant differences critical for your profit and loss.
You might even get to a situation when your online trading platform breaks down and you will have to call your broker in order to quickly close or adjust some of your positions.