Shorting Put Option is basically selling Put option on an index / underlying stock which is a bullish strategy or in sideways.
Sell Put option if your view on the Market is Very Bullish or in consolidation , you receive premium from the buyer which is limited . But if the price goes down beyond the strike price, you lose will be unlimited till you book loss.
So it's better to put stop loss when you short.
Strategy - Very Bullish or in consolidation till expiry
Risk - unlimited
Reward - limited to the premium recieved
Breakeven is Strike price - premium paid
If the Market is Bullish or sideways/ consolidation , you are in profit because you receive premium from the Put buyer.
If the Market is Bearish, you will be in loss.
Eg.
Nifty Currently trading at 16200.
You are shorting Nifty 16100 PE July 2022 @ 100 premium of 1 lot size (50 contracts) in view of your Bullish view.
So, 100*50= 5000 is the premium recieved from the buyer for shorting
Nifty 16100 PE July 2022.
If the Market is Bearish and ends up @15900 on expiry, you will be in huge loss because you are against the Trend of your strategy.
If the Market is Bullish, and ends up at 16300 on expiry date, your profit is limited to 5000 only which is the premium recieved
If Market is @ 16000 on Expiry, that is the breakeven. So there will be no loss and no profit.
So Shorting a Put Option is beneficial only when you are expecting the market to be in consolidation or bullish
For 1 point increase in Nifty, delta will increase. As the contract is near to expire, theta decay helps in your favour (option seller).
