Option Parameters

$
Current stock price at trade entry
$
Strike price of the put option
Calendar days remaining
%
Annualized implied volatility
$
Option price per share
%
Annualized risk-free rate
%
Annualized dividend yield
Each contract = 100 shares

Short Put Quick Reference

P/L at Expiration:

P/L = Total Credit - max(K - S, 0) × 100 × Qty

Total Credit = Premium per Share × 100 × Qty

Key Terms:

  • S = Stock price at expiration
  • K = Strike price
  • Qty = Number of contracts
  • Breakeven = K - Premium per share

Key Metrics

Entry Credit --
Max Profit --
Max Loss --
Breakeven --
Put Premium --
Move to BE --

Formula Breakdown

P/L = Total Credit - max(K - S, 0) × 100 × Qty
Breakeven = Strike Price - Premium per Share

P/L Diagram

Ryan O'Connell, CFA
CALCULATOR BY
Ryan O'Connell, CFA
CFA Charterholder & Finance Educator

Finance professional building free tools for options pricing, valuation, and portfolio management.

About YouTube

Understanding Short Puts

What Is a Short Put Option?

A short put option (writing a put) obligates you to buy shares at the strike price if the buyer exercises. You collect a premium upfront, and your maximum profit is limited to that premium.

Short puts are a bullish or neutral strategy: you profit when the stock stays at or above the breakeven price (strike minus premium), allowing the option to expire worthless or with minimal intrinsic value.

Key Characteristics

  • Max Profit: Limited to the total premium received (entry credit)
  • Max Loss: (Strike × 100 × Contracts) minus premium received — occurs if stock falls to $0
  • Breakeven: Strike price − premium received per share
  • Outlook: Bullish or neutral (you expect the stock to stay flat or rise)
  • Time Decay: Works in your favor (option loses value as time passes)

How to Read the P/L Chart

The solid blue line (At Expiration) shows your profit or loss if you hold the position until expiration. The shape shows the short put's limited upside (capped at premium received above the strike) and increasing loss as the stock falls below the breakeven.

The dashed dark blue line (Today / T+0) represents your theoretical P/L at trade entry, computed using the Black-Scholes model. At T+0, this curve sits below the expiration line because the option still holds time value that works against the seller. As time passes, the T+0 curve rises toward the expiration curve — this is time decay working in your favor as a seller.

IV Mode vs. Premium Mode

IV Mode: Enter the implied volatility, and the calculator uses the Black-Scholes model to estimate the theoretical put premium. This mode also enables the "Today (T+0)" P/L curve on the chart, showing how the option value changes before expiration.

Premium Mode: Enter the exact premium you received (or expect to receive) per share. This is useful when you know the actual market price. In this mode, only the expiration payoff curve is shown because IV is needed to compute theoretical values before expiration.

When to Use a Short Put

  • You expect the stock to stay flat or rise
  • You want to collect premium income from selling options
  • You are willing to buy the stock at the strike price if assigned
  • You have a bullish or neutral outlook on the stock
Assignment Risk: This calculator models a short put — selling a put option. If the stock falls below the strike, you may be assigned and obligated to buy 100 shares per contract at the strike price. A cash-secured put (holding enough cash to cover assignment) has the same payoff but eliminates margin call risk.
Model Assumptions: This calculator uses the Black-Scholes model, which assumes European-style options, constant implied volatility, continuous dividend yield, and a constant risk-free rate. These are standard simplifications for educational purposes.

Frequently Asked Questions

A short put option (also called writing a put) obligates you to buy shares at the strike price if the buyer exercises. You collect a premium upfront. It is a bullish or neutral strategy: you profit when the stock stays above the breakeven price (strike minus premium). Your maximum profit is limited to the premium received, while your maximum loss is finite and occurs if the stock falls to zero.

The maximum loss on a short put is finite and occurs when the stock price falls to zero. The loss at that point is (Strike Price × 100 × Number of Contracts) minus the total premium received. Unlike a short call where loss is theoretically unlimited, a short put has a defined worst case because the stock cannot fall below zero.

The breakeven price for a short put is Strike Price − Premium Received per Share. At this stock price at expiration, the loss on the put exactly equals the premium you collected, resulting in zero profit or loss. Above the breakeven, you keep some or all of the premium as profit; below it, you have a net loss.

Implied volatility (IV) represents the market's expectation of future stock price movement. Higher IV means higher option premiums, which benefits short put sellers because they collect more premium upfront. However, higher IV also means greater risk of a large stock move against the position, potentially leading to larger losses if the stock drops significantly.

Use IV mode when you want the calculator to estimate the theoretical option price using Black-Scholes. This also enables the T+0 (today) P/L curve on the chart, which shows how your position value changes before expiration. Use premium mode when you know the exact premium you received or expect to receive and want to see the expiration payoff based on that known credit.

Assignment risk means the put buyer can exercise the option, obligating you to buy 100 shares per contract at the strike price. For American-style options, this can happen at any time before expiration, not just at expiry. Assignment is most likely when the put is deep in the money and there is little time value remaining. If assigned, you must purchase the shares regardless of the current market price.

A cash-secured short put means you hold enough cash in your account to buy the shares if assigned (Strike Price × 100 × Contracts). This is a conservative approach with no margin call risk. A naked short put uses margin instead of full cash collateral, requiring less capital upfront but exposing you to margin calls if the stock drops. Brokers set margin requirements based on the underlying price, strike, and volatility. Cash-secured puts are common in retirement accounts, while naked puts require margin approval.
Disclaimer

This calculator is for educational purposes only. Options trading involves significant risk of loss. Actual option prices and P/L may differ due to market conditions, bid-ask spreads, dividends, early exercise (American options), and other factors. The Black-Scholes model makes simplifying assumptions including constant volatility and European-style exercise. This is not financial advice. Consult a qualified professional before making investment decisions.

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