Short put covers - short shares

Remember, the risk of a short put comes from having to sell shares at a lower price than what they were bought for (through being assigned). If the investor is short the shares, the sale already occurred. If the put is exercised, the customer buys back shares, which closes their short position. They won’t have to worry about selling them at a lower price, because the sale already occurred when the stock was sold short!

Now I’m sure this is already clear but it’s late. When you say investor here, do you mean the writer/seller? I’m confused about everything after the first sentence really.

1 Like

Right above that paragraph you see the list of potential covers if an investor were short a put contract:

  1. Short shares
  2. Long put
  3. Cash (equal to the maximum loss)

So if the investor were short a put, they could be covered with any of the following:

  1. Short shares because they already sold the shares previously. The short put, if exercised, will cause the holder (investor) to purchase those shares back and close out the short position.

  2. They could also be covered by a long put… this is basically creating some type of covered spread like a vertical of some sort. (Put debit spread, put credit spread, etc.)

  3. Finally they could always be covered with available cash in their account. This is generally called a cash secured put. For example, if you didn’t have the proper margin requirements in your brokerage account for doing undefined risk options strategies, your brokerage would only allow you to do covered strategies. Well, a short singe leg put, if not covered by numbers 1 & 2, would have to be covered by number 3 (cash). If one were to sell a $19 strike put in Ford, you would have to have 19x100 cash in your account ($1,900), in which case it is now “cash secured.”


Oh, and yes, the investor is the writer of the option.


Couldn’t have said it better myself. Thanks, @Gray!