Learn options trading – Puts

A put is a contract that gives the holder the right to sell the underlying stock at a predetermined strike price, by a fixed expiration date, for a premium whose value varies depending stock price, and greeks.

The contract is written by the option seller who either owns the underlying, in the case of a covered put, or does not own the underlying, in the case of a naked put.

The buyer of the contract is called the Holder, and has a long position, the seller is called the Writer, and has a short position.

It is important to note the difference between writing and holding a call:

  • Holding a put position has limited profit: if the stock goes to zero the profit is maximum. However the risk is limited to the premium paid for the contract.
  • Writing a limited reward, and writing naked puts has unlimited risk, and covered calls have a very high risk (if a stock rises).
Follow up with:
  1. Writing a put
  2. Holding a put
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