Short put (naked)
Sell a put without cash collateral. You collect premium and take on the obligation to buy the stock at strike. Often paired with cash collateral as a "cash-secured put".
How a short put (naked) works
Selling a put collects a premium in exchange for the obligation to buy 100 shares at the strike if the buyer exercises. You are being paid to agree to purchase the stock lower than it trades today. The maximum profit is the credit; the maximum loss runs down to the strike price minus that credit, because a stock can fall to zero.
Traders describe this risk as large but not unlimited, and the distinction matters. A naked short put on a $95 strike risks $9,300 per contract in the absolute worst case — a real number you can size against, unlike a naked call. It is still the same directional exposure as owning 100 shares, which is the honest way to think about it.
The position profits when the stock rises, stays flat, or falls only slightly. Time decay works for you and falling implied volatility works for you. What hurts is a sharp decline, and the leverage means it hurts faster than the credit suggests.
A worked example
XYZ trades at $100. You sell one $95 put expiring in 30 days and collect $2.00 per share.
The $200 credit is what you are paid to accept roughly $9,300 of downside. That ratio is why the strike should be a price you would genuinely want to own the stock at, not just one that looks far away.
When a short put (naked) fits — and when it doesn't
- You are neutral to bullish and would be content owning the shares at the strike.
- Implied volatility is elevated, making the credit worth the obligation.
- You have the cash or margin to take assignment without it disrupting the rest of the account.
- You do not actually want the stock. Selling puts on something you would not own is how a small credit becomes a position you are stuck managing.
- Earnings or another binary event falls before expiry.
- You are selling far out-of-the-money puts purely for the small credit — the payoff profile is poor and the tail is real.
Common questions
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