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Calculate an uncovered put sale15 minute read
Short put max profit, loss, and break-even
Calculate uncovered short put maximum profit, stock-to-zero loss, expiration break-even, effective purchase price, margin, fees, IV, assignment, and funding risk.
Prepared by Mark · Primary sources below
Direct answer
A standalone short put sells the obligation to buy stock at strike K and receives credit C per share. Before fees, maximum profit is C, expiration break-even and effective assigned purchase price are K - C, and maximum loss if the stock becomes worthless is also K - C. Expiration profit per share is C minus the greater of K minus stock price and zero. Apply multiplier, quantity, and costs.
Distinguish payoff from funding
An uncovered and a cash-secured put have the same option expiration payoff, but different collateral readiness and account intent. This page focuses on the naked or margin-funded short put.
If K = 50, C = 1.75, and multiplier is 100, one contract receives 175 and creates a possible obligation to buy 100 shares for 5,000. The credit does not fund most of that purchase.
Maximum profit stops at the premium
At any expiration stock price at or above 50, the put has no intrinsic value and maximum fee-free profit is 1.75 per share, or 175 per standard contract.
Further stock gains add nothing to the short-put payoff. Fees, a buyback, or an adverse fill reduce the net amount retained.
Break-even becomes an effective purchase price
Below K, intrinsic loss rises dollar for dollar. The 1.75 credit offsets that loss until stock reaches 48.25, so K - C is both the expiration break-even and the fee-free economic share price after assignment.
At stock prices of 50, 48.25, and 35, results are 1.75, 0, and −13.25 per share. One standard contract produces 175, 0, and −1,325 before costs.
Zero-price loss is finite but substantial
If stock becomes worthless, the writer buys at 50 and has received 1.75, leaving a maximum fee-free loss of 48.25 per share or 4,825 per contract.
Calling this unlimited is mathematically wrong for an ordinary nonnegative stock, but calling it safely limited understates how large the loss can be relative to premium and initial margin.
Assignment and margin arrive before the payoff chart ends
American-style puts can be assigned early, creating long shares at K. The account needs funding at assignment, not merely at the planned expiration, and the stock can continue falling after delivery.
Before expiration, a price decline, IV increase, downside skew, time value, and poor liquidity can raise the buyback cost above C while stock remains above 48.25. Margin is variable collateral, not maximum loss.
Common questions
What is the short put maximum-loss formula?
For an ordinary stock that cannot fall below zero, subtract the per-share premium received from the put strike, multiply by the contract multiplier and number of short puts, then add relevant costs. The maximum occurs if the stock becomes worthless and the writer must buy it at the strike. The amount is finite mathematically but can be many times the premium and initial buying-power reduction.
How do I calculate a short put break-even price?
Subtract the per-share credit received from the put strike. A 50-strike put sold for 1.75 has a fee-free expiration break-even of 48.25, which is also the economic purchase price if shares are assigned. Before expiration, this is not a fixed loss boundary because time value, implied volatility, skew, rates, dividends, and executable spreads affect the cost to close.
Is a naked put the same as a cash-secured put?
The short option has the same strike-based expiration payoff, but the funding and intent differ. A cash-secured writer reserves resources to purchase the shares and commonly accepts ownership, while a naked-put writer relies on margin and may not want the stock. Collateral policy, liquidation risk, interest, assignment preparedness, and suitability therefore differ even when the payoff formula matches.
What happens when a short put is assigned early?
The writer generally buys the contract shares at the strike and keeps the opening premium as part of the total economics. The account must fund settlement and then bears full long-stock risk, including further declines. American-style puts can be assigned before expiration, especially when deep in the money with little time value, so buying to close is the only direct way to eliminate the obligation after the order fills.
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