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Short Put Option Trading Strategy-Bullish Strategy

Short-Put-Option-Trading-Strategy

Short Put Option Trading Strategy-Bullish Options Trading Strategies

A short put option strategy is a bullish option trading strategies in which the investor/trader believes that the underlying price will not fall below a certain level. Main motivation behind implementing a short put strategy is to profit from the premium linked while selling put option.

Risk

If the index/stock falls below the strike price of the put, the losses are possibly limitless, with little profit potential.

Reward

Profits of the investor/trader will be limited by the amount of the premium obtained. In other words, the premium obtained is the utmost profit a security operator can make from this transaction.

Construction

Sell 1 Put Option

short put

Option Type Expiry Date Strike Price LTP Action No. Of Lots
PUT 29/03/2023 17000.0 132.15 Sell 1

 

Payoff Chart

Market Expiry Payoff 1 Net Premium Option PayOffAt Expiry
16650.0 -350.0 132.15 -217.85
16700.0 -300.0 132.15 -167.85
16750.0 -250.0 132.15 -117.85
16800.0 -200.0 132.15 -67.85
16850.0 -150.0 132.15 -17.85
16900.0 -100.0 132.15 32.15
16950.0 -50.0 132.15 82.15
17000.0 0.0 132.15 132.15
17050.0 0.0 132.15 132.15
17100.0 0.0 132.15 132.15
17150.0 0.0 132.15 132.15
17200.0 0.0 132.15 132.15
17250.0 0.0 132.15 132.15
17300.0 0.0 132.15 132.15
17350.0 0.0 132.15 132.15
17400.0 0.0 132.15 132.15
17450.0 0.0 132.15 132.15

 

Short Put Option Trading Example

Assume the NIFTY is trading at 17000 and the trader views the market as bullish, but the trader in worst case scenario does not see the market falling below certain levels. He anticipates the NIFTY to climb to 17150-17250 levels or even higher before expiry. He intends to sell one NIFTY 17000 Put Option for a premium of approximately Rs.130. Trader’s account will be credited by approx Rs. 6600 (132*50) which is the premium received on sale of Put option.

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    Scenario 1

    If the NIFTY ends at 17200, the investor is entitled to the entire premium paid for selling the put option, which is Rs. 6600.

    Scenario 2

    If market takes a wild move more than the expectation of the trader and the index falls to 16800 at expiry, the trader will lose Rs. 3500. [(17000-16800) *50]

    Also read: Covered Call Option Strategy

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