Options Strategies for the Agile Investor (Collection)

The Short Put, a Worthwhile Cash Cow

Michael C. Thomsett

You may know all about covered and uncovered call writing and the degrees of risk involved. But the uncovered put belongs in your arsenal of trading weapons as well. The short put offers great profit potential with limited risk. However, short puts are overlooked by many traders, which means the potential of profitable strategic uses of puts is limited. Puts cannot be covered like short calls, but short put risks are lower because a stock’s price cannot fall indefinitely. It is a mistake to assume that uncovered puts are just as risky as uncovered calls.

The maximum risk of writing a short put is the difference between current market value and zero. This worst case outcome is possible; ...