Why Would You Sell A Put?
Writing or selling puts is something you do when you think a token price will rise and you are prepared to buy someone's tokens at a certain price for a premium
Selling Puts is desirable for market players that are willing to write insurance contracts to others in the market, typically to collect premiums. It is the opposite of selling a call. It is a bearish strategy.
Writing puts can be risky because when a put is exercised, you must purchase the underlying asset, which is declining in price. However, market participants will do so because they do not believe the asset will decline in price, or they are willing to accept the risk for the premium. This is generally why puts are more expensive than calls because more participants are looking to hedge their assets by buying puts. So with the higher demand put, writers can charge higher premiums in return.
Put writers play a vital role in a well-functioning market and financial system as they provide critical insurance policies — offering downside protection to asset holders.

Example selling a put

Vitalik sells one Ethereum put option (ETH) on Feb 05 with a $1000 strike price for a $45 premium price. As the put option expires on Feb 12, ETH has never dropped below the $1000 strike price. Vitalik keeps the premium price and made a $45 profit.
If the price had dropped below $1000, the other party could have exercised the put, and Vitalik would have had to pay $1000 for the ETH. Which he can easily regain when Ethereum rises, should he be an ETH holder.
Last modified 7mo ago
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