Short Put

    graph TD;
	    A[Investor Sells Short Put] --> B[Receives Premium]
	    B --> C{Stock Price Moves};
	    C -->|Above Strike Price| D[Option Expires Worthless]
	    C -->|Below Strike Price| E[Investor Buys Stock at Strike Price]
	    E --> F[Potential Losses]
	    F --> G[Loss= (Strike Price - Market Price) - Premium]

## What happens if the stock price is above the strike price at expiration? - [x] The option expires worthless for the buyer - [ ] The seller has to buy the stock - [ ] The seller receives a margin call - [ ] The seller has to refund the premium > **Explanation:** If the stock remains above the strike price, the put option will expire worthless, and the seller keeps the premium. ## If you sell a short put and the underlying stock price drops significantly, what could happen? - [x] You may be forced to buy the stock at the strike price - [ ] You will receive additional premiums - [ ] Your put will become worthless - [ ] You get to make a sad face at the market > **Explanation:** If the stock price falls below the strike price, you are obligated to purchase the stock at that price, which can lead to losses. ## What is the primary risk associated with writing a short put? - [ ] Unlimited potential gains - [x] Substantial potential losses - [ ] Colin the cat will eat your lunch - [ ] Forced to attend an awkward dinner with the buyer > **Explanation:** The primary risk of selling short puts is that losses can be substantial if the stock price drops significantly. ## What do you receive when you write a short put? - [x] A premium from the option buyer - [ ] A guarantee of profits - [ ] A 2-for-1 coupon for more options - [ ] A high-five from the market > **Explanation:** When you sell a put option, you receive a premium, which is your income for taking on the risk. ## How does a bullish market impact a short put strategy? - [x] It increases the likelihood of retaining the premium without obligation - [ ] It increases the intensity of put buyers - [ ] It decreases the risks associated with selling puts - [ ] It results in mandatory dance parties with buyers > **Explanation:** In a bullish market, the stock is more likely to stay above the strike price, allowing the seller to keep the premium. ## If you decide to buy back your short put option, what is that called? - [ ] Re-insuring a mistake - [ ] Doubling down - [x] Closing the position - [ ] Buying a lottery ticket for good luck > **Explanation:** Buying back your short put option to exit the position is known as closing the position. ## What does the "strike price" refer to in options terminology? - [ ] The price a halved fruit goes for - [ ] The potent price of pizza in an option market - [x] The set price at which the option holder can sell the underlying asset - [ ] The price at which the sellers fight back > **Explanation:** The strike price is the predetermined price at which the option can be exercised. ## In the event of options expiration, what happens to unexercised short puts? - [x] They expire worthless, and the writer keeps the premium - [ ] The writer must buy the underlying asset - [ ] Future premiums are added at the writer's will - [ ] The writer has to return the premium with interest > **Explanation:** If the option is not exercised, it expires worthless, and the writer retains the premium. ## What is generally the market outlook of a trader who sells short puts? - [x] Bullish - [ ] Bearish - [ ] Indifferent - [ ] Confused > **Explanation:** Sellers of short puts usually have a bullish outlook, expecting the stock price to rise. ## How does selling a short put provide an opportunity for income? - [ ] By forcing a commitment to supply options - [x] Through receipt of premium from the sale - [ ] Via mandatory market meetings - [ ] As a reward for best fashion in trading > **Explanation:** By selling a short put, the trader receives a premium as income, betting on a positive price movement.