Short put is a strategy which can be played when you are bullish about nifty or any stock. If you think that Nifty will be go up you can either buy calls (long call) or short puts (sell puts). Most retailers almost always buy option and never sell. Its quite strange as option buyers mostly lose money. Your strategy should depend on market conditions and not just one single strategy.
Anyways coming back to the topic. If you think Nifty will move up you can short puts. If your view was right, your put will expire worthless and you can keep the premium. Of course if your view was wrong – you are at unknown risk till expiry or till the stock or index reaches zero. 🙂 Put cannot lose any further.
Have a look at the graph:
Its clear from the graph above that a put loss can be max when the stock reaches 0. A short put cannot lose more than that. However a short call can lose unlimited amount of money because the stock can rise to any level on the upside. In my course I teach how you can use this feature to your advantage.
Don’t be afraid of shorting puts, but have a plan like buying another put for protection. Yes you can buy calls as well if your view is bullish and it does have a limited risk. But the problem is buying options also comes at a risk. We will first discuss the short put and the difference between buying calls and shorting puts later.
Let suppose Nifty is at 5300 and you think that it may go up in the near future (you are bullish), you can short OTM puts. For example if you think Nifty may not go below 5200 this series as it has already come down a lot recently, then you can sell 5200 put. The lower you go, the safer you are, but the lesser premium you get. Low risk low returns, high risk high returns.
If Nifty does not go below 5200 as you had expected, you keep the premium. However if it keeps going down, your risk starts from 5200 minus the premium you got. For example if you got 100 as premium then your risk will start from 5200-100 = 5100.
Therefore it is always recommended that you should do a credit spread. Short 5200 put and buy 5100 or 5000 put. That way you will be not be on unlimited risk and you can breath easy even if Nifty is going against your view. Selling naked options is very risky. With credit spreads you know your max risk, and the best part is you are not on max risk from day one. If indeed nifty moves against your spread you can buy it back and sell another spread much lower – say for example 5000/4800. Chances are this time you will be successful. After all what are the chances that Nifty will close below 5000 within a month? You will get back your loss plus you may make some profit as well.
Of course you must make sure you are not taking a big loss, so before Nifty reaches an uncomfortable level you should buy back to close the spread. And if you think nifty will go even further down, you can wait for a couple of days to sell another spread. This will give you double benefits of going much lower and getting good premium. And don’t forget the losses you restricted because you acted sooner. If you keep waiting for things to reverse, thatâ€™s the worst decision you can ever take. Because in trading, hope never works. Period.
Yes nifty may revert back, but most of the times waiting for too long will make your losses bigger and impact your over all return in a year.
And one more thing – you should not wait till expiry. If you got 70-80% of return of a sold put or call you should close it as eventually you will find that a profitable position going back to a losing one. You do not want that. Don’t be cheap. Just close your profitable position, and be happy. Look for other opportunities.
Now coming to the difference between buying calls and selling puts. Both do the same job – giving you profits if Nifty goes up. On paper though buying calls is limited risk and unlimited profits, and shorting puts is limited profit and unlimited risk. However in reality both of them have some risk and some profit.
Example time. Lets suppose Nifty is at 5500 and you decided to short put and you got 100 as premium. Your friend decides to buy calls. Lets suppose 5500 call is also at 100. As a buyer probably he is looking for 10 points or 20 points profit. That is what most option buyers look for isn’t it? However you have decided that you will close your short put if Nifty reaches 5400 – that is your stop loss. Your friend will make his 20 point profit and exit. If nifty does not come back to 5500 in that series – your put will expire worthless and you keep all 100 points. Who made more?
Yes, if your view was wrong you are at unlimited risk so you can’t wait beyond 5400 and close your trade at a loss, however an option buyer may wait till the end of series to try his luck as he is at limited risk. If nifty turns and starts moving up, he can close at a profit. As you can see there is a trade off in both.
Some people like me, like to sell, but some like to buy. That is not important. What is important is what nifty does after you put on the trade.
You Can Read More On My Site
Hi, I am Dilip Shaw, owner of this website. I am a trader like you. I have been trading since 2007, but lost a lot of money till 2010. I then stopped trading and studied options like college exams. Started trading again from 2011 and never looked back since. I did a lot of research, read books and did countless paper-trading before being profitable. You can read about me here.
My conservative trading course since 2014 is helping many retail traders just like you who have a job or business make consistent profits like this:
What Traders Say About This Course
Testimonials Year 2015
Testimonials Year 2015 Page 2
Testimonials Year 2015 & 2016
Testimonials Year 2016
Testimonials Year 2017
Testimonials Year 2018
Testimonials Year 2019
Testimonials Year 2020 to 2023
What People Say Just After Reading My Course
Emotional Testimonial by a Young Woman Trader and Her Mother
One Of My Client Is Making Rs.25k Per Week
Difference Between Other Courses And Mine
What Others Charge for Courses
You can do this course from your home. Some traders make amazing profits like Rs. 16.26 lakhs profit in 5 days though results may differ for all.
This course helps you learn to trade conservative option strategies for monthly income. Once you finish the course you can start trading immediately. You can start trading from any day. No need to wait for expiry. You will make profits consistently.
This course is good if you have a regular job or business. You DO NOT NEED to monitor your trades every second.
What You Get?
Before reading please understand that for all 5 strategies, strike selection will be taught. Strike selection while trading Options is the most essential part to succeed.
You get two conservative non-directional strategies on options, one conservative stock option strategy and two conservative directional strategies on Future & Option combination.
Non directional trades are profitable 80% of the times and make 3-5% per trade (Results may vary).
Directional strategy makes money fast. It does not matter which side the stock moves. In fact you make more when you are wrong in the Future trade. 🙂 Some amazing profits possible here.
The stock option trade makes 30,000 in one trade and if SL is hit there is a way to recover losses plus make 30k in that trade.
Technical knowledge is NOT required. No need to monitor trades every second.
In the course you will learn how to select the strike prices. You learn when to trade, which strikes to sell which to buy, how much profit target you should be looking for, the best place to take stop loss and what to do after taking stop loss – means how to get that money back. The success rate is more than 80%.
Since trades are properly hedged there is no stress in trading my strategies.
I am very confident that you will make money trading my strategies. To help you succeed I offer few months support for FREE.
11 Reasons Why You Should Do The Course:
1. TA Knowledge NOT required
2. NO Software Required
3. Regular Monitoring NOT Required
4. Continue with Your Job
5. Do Course From Your Home
6. 100% Hedged
7. Stress-Free Trading
8. Not too much money needed to trade
9. Scaling Possible
10. One Time Fee
11. FREE Support For Months
To know more Call/SMS/WhatsApp me on 9051143004 or email me now. I know English and Hindi.
Read the details of the course here.
If you want to enroll for the course you can do so here.
P.S: So many years of trading has thought me one thing - it is always better to make small profits month after month, rather than lose money month after month trying to make too much money. It never happens. But small money accumulated month after month can become very big in only a few years.
WhatsApp or Call me: 9051143004
If you have any question you can contact me.
You can read about me here and my trading mistakes here.
Dilip Shaw, Founder
Copyright Infringement: Any act of copying, reproducing or distributing any content in the site or newsletters, whether wholly or in part, for any purpose without my permission is strictly prohibited and shall be deemed to be copyright infringement.
INCOME DISCLAIMER: Any references in this site of income made by the traders are given to me by them either through Email or WhatsApp as a Thank You message. However every trade depends on the trader and his level of risk taking capability, knowledge and experience. Moreover stock market investments and trading are subject to market risks. Therefore there is no guarantee that everyone will achieve the same or similar results. My aim is to make you a better & disciplined trader with the stock trading and investing education and strategies you get from this website.
DISCLAIMER: I am NOT an Investment Adviser (IA). I am an Authorized Person (AP) of a Stock Broker. In other words I am a sub-broker. I DO NOT give tips or advisory services by SMS, Email, or WhatsApp or any other forms of social media. I strictly adhere to laws of my country. I only offer education for free on finance, risk management & investments in stock markets through the articles in this website. You must consult an authorized Investment Adviser (IA) or do thorough research before investing in any stock or derivative using any strategy given in this website. I am not responsible for any investment decision you take after reading any article in this website. Click here to read the disclaimer in full.