Put Writer

A put writer is a trader who sells (or "writes") a put option, taking on the obligation to buy a stock at a set price if the buyer of that put decides to exercise it. In exchange for taking on this obligation, the put writer collects a payment upfront called a premium.

To understand the mechanics, remember that a put option gives its owner the right to sell a stock at a fixed price (the strike price) before the option expires. Someone has to be on the other side of that trade, standing ready to buy the stock if the owner chooses to sell. That someone is the put writer. If the stock stays above the strike price, the option typically expires worthless, and the put writer simply keeps the premium as profit. If the stock falls below the strike, the writer can be forced to buy shares at the strike price even though the market price is lower.

The nuance that trips people up is that writing a put is a bet that the stock will NOT fall much, which feels backwards to traders used to thinking "buying puts = bearish." Selling a put is actually a bullish-to-neutral position: the writer wants the stock to stay flat or rise, because that lets the option expire worthless and lets them keep the premium without having to buy the stock. It's the mirror image of buying a put.

Put writing can be "cash-secured," meaning the writer sets aside enough cash to buy the shares if assigned, or "naked," meaning the writer has not set aside that cash or an offsetting position, which is far riskier because losses grow as the stock keeps falling with no real limit until zero.