Short Selling Options

Short options strategy

The Short Option: A Primer on Selling Put and Call Options

A short call is an options trading strategy in which the trader is betting that the price of the asset on which they are placing the option is going to drop. Key Takeaways A short call is a strategy involving a call option, which obligates the call seller to sell a security to the call buyer at the strike price if the call is exercised. A short call is a bearish trading strategy, reflecting a bet that the security underlying the option will fall in price.

A short call involves more risk but requires less upfront money than a long put, another bearish trading strategy. How Does a Short Call Work?

Short Call

A short short options strategy strategy is one of two simple ways options traders can take bearish positions. It involves selling call options, or calls.

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Calls give the holder of the option the right to buy an underlying security at a specified price. If the price of the underlying security falls, a short call strategy profits. To limit losses, some traders will exercise a short call while owning the underlying security, which is known as a covered call. This gives Paper the right to purchase Humbucker shares at that specific price.

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If the stock heads lower over time, as the Liquid gang thinks it will, Liquid profits on the difference between what they received and the price of the stock. Things can go awry, however, if Humbucker shares continue to climb, creating limitless risk for Liquid.

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Short Calls Versus Long Puts As previously mentioned, a short call strategy is one of two common bearish trading strategies. The other is short options strategy put options or puts.

Short call - uncovered

Put options give the holder the right to sell a security at a certain price within a specific time frame. Going long on puts, as traders say, is also a bet that prices will fall, but the strategy works differently.

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In a way, it's achieving the same goal, just through the opposite route. Of course, the long put does require that Liquid shell out funds upfront.

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