Short position: you collect the premium and take on the obligation. Theta works for you, but the risk is higher.
What the position means
Going short (Short) in contracts means taking on the obligation: you collected the premium, and now the decision is in the other side's hands. If they exercise, you must deliver. Your maximum profit is known in advance (the premium) and your loss is open-ended unless a protective leg or owned cover caps it.
The economics of the obligation seller
You sell probability and time: time is on your side (theta works for you) and the statistics are usually with you, since most contracts expire worthless. The price is an inverted return distribution: many small wins and rare large losses. Managing the tail is the whole craft.
Its safety levels
Covered (shares back the sold call obligation) or cash-secured (cash backs the sold put): a supported, calculated obligation. Naked, with no backing: open exposure suited to someone with the margin, the discipline and the experience. Most derivatives disasters start here.
Hypothetical example
Selling a cash-secured put for a $150 premium each month on a stock you like: eleven quiet months = $1,650. In the twelfth month the stock falls 20%: you receive the shares above the market price. The steady income was matched by the obligation of the hard day, and that is the whole contract.
Common mistake
Treating the premium as 'free income': it is the fee for insurance against an event that will happen someday. Whoever enlarged their size because 'selling always wins' met that day with a size they could not get up from.
Its inverted return distribution
Many small wins and rare large losses, so the average does not describe the experience. That is why a seller's quality is judged by the worst month, not the average of the months, and why position size is managed so that day stays bearable: a size you can exit from, not one that ends the account.
Where to see it on the platform
The calculator computes the collection structures with their limits, and the volatility risk premium indicator measures whether the pay for selling is generous or thin right now.
The calculator computes the maximum obligation of each structure, and the VRP indicator measures whether the pay for selling is generous or thin right now.
