Someone Who Is Short 1 August 35 Put At 3 Will Breakeven At

In options trading, a “short put” refers to the strategy where an investor sells a put option with the expectation that the underlying asset will not fall below the strike price of the option. The put seller collects a premium for taking on the obligation to buy the underlying asset at the strike price if the option is exercised. To understand how the breakeven point is calculated for someone who is short 1 August 35 put at 3, it’s important to consider the mechanics of the trade.

In this scenario, the investor has sold (or written) one put option with a strike price of 35, expiring in August, and received a premium of 3 for this option. The breakeven point is the price at which the total gain or loss from the trade equals zero. The key to determining the breakeven point involves subtracting the premium received from the strike price of the put option.

Thus, for someone who is short 1 August 35 put at 3, the breakeven point is calculated by subtracting the premium of 3 from the strike price of 35. This means the breakeven price is 35 - 3 = 32. Therefore, the investor will break even if the underlying asset’s price is 32 at expiration. If the price of the underlying asset is above 32, the option will expire worthless, and the investor will keep the entire premium as profit. Conversely, if the price falls below 32, the investor will incur a loss, as they will need to buy the asset at the higher strike price of 35 while having received only 3 in premium. This breakeven analysis helps in understanding the risk and reward profile of a short put position.

A short put option strategy involves selling a put option with the expectation that the underlying asset’s price will remain above the strike price. In this strategy, the seller collects the premium from selling the put but risks having to buy the asset at the strike price if the option is exercised. The breakeven point for a short put is calculated by subtracting the premium received from the strike price of the put option.

Breakeven Calculation for Short Put

To determine the breakeven point for a short put, use the following formula:

\[ \text{Breakeven Price} = \text{Strike Price} - \text{Premium Received} \]

For example, if someone is short a put option with a strike price of $35 and the premium received is $3, the breakeven price would be:

\[ \text{Breakeven Price} = 35 - 3 = 32 \]

Thus, the underlying asset needs to stay above $32 for the position to be profitable at expiration.

Short Put Profit and Loss Table

Strike Price	Premium Received	Breakeven Price
35	3	32

Insights on Short Put Strategy

“In a short put strategy, the goal is to profit from the stability or increase in the underlying asset’s price, with the breakeven point serving as the minimum threshold for no loss.”

Mathematical Breakeven Analysis

To analyze the breakeven price mathematically, let \( S \) represent the strike price and \( P \) the premium received. The formula for the breakeven point \( B \) is:

\[ B = S - P \]

Where:

• \( S \) = Strike Price
• \( P \) = Premium Received

In the given scenario, substituting \( S = 35 \) and \( P = 3 \) yields:

\[ B = 35 - 3 = 32 \]

This formula helps in determining the breakeven price and assessing the risk-reward profile of a short put position.