Short Option
Short option positions earn premium but carry risk if the market moves against you.
Quick facts
| Field | Value |
|---|---|
| Category | Options Trading Terminology |
| Use | Learn vocabulary to read chains and manage risk |
Definition
Shorting (writing) options means you sell options and receive premium. Your profit is often limited to that premium, while losses can be large depending on structure. Risk management and defined-risk spreads are important for most traders.
Key risks
- Tail risk on sharp moves
- Margin expansion
- Assignment/exercise mechanics depending on contract style
Summary
- Short options = income with risk.
- Prefer defined-risk structures while learning.