Short Put Option Explained
A short put option strategy is one of the most basic building blocks to generate income with your portfolio. When you sell a put option you are taking the obligation to buy shares of the underlying stock at the strike price. Generally, you will sell a put option below the current market price for that stock (far OTM). Meaning, that if the stock drops below your strike price you will be required to buy the stock at the strike price, even if it is higher than the current market value. However, if the stock never drops below your strike price, the option will expire worthless and you will keep the entire credit you received for selling the put option to the other party in the transaction. This is how you generate a consistent monthly income high probability trading.