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What Does It Mean To Short A Put Option?

Hi, yes, simple answer.


Shorting = selling.


In your case, shorting a put option would mean that you are selling a put option.


Do you know what shorting (selling) a put option is?


When you sell a put option, you are agreeing to purchase the underlying security (a stock, a bond, a commodity, etc) at the strike price for a certain period of time (expiration date). In exchange for your agreement, you will be paid an upfront fee.


Many people sell put options for a living and make good money from the upfront fees.


For example, let’s say a stock is at $50 per share and you want to buy it cheaper at $40 per share. You could only do this if the stock happens to fall to $40.


But, you could also sell a put option with a $40 strike price and receive the upfront fee.


This would obligate you to buy this stock at $40 per share if it falls that far within the expiration period you choose. If it doesn’t fall to $40, you keep the upfront fee and then you could sell another $40 put option and collect another fee.


You could theoretically keep doing this over and over and keep collecting the upfront fees. And if the stock does fall to $40, then good, you got to buy the stock you wanted at a good price.


This is what we do in our newsletter.


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- Lee

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