Module 1: Core Strategy & Trade Mechanics

The Short Put, or selling a put option, is a premium-generating strategy favored by traders who maintain a neutral to moderately bullish outlook on an underlying asset. The core goal is to collect the premium (the credit) upfront and keep it if the option expires worthless.

When you Sell to Open a put option, you are granting the buyer the contractual right to sell the underlying asset to you at a specific price (the strike price) on or before the expiry date. Your primary view is that the price of the asset, such as the US 500, will stay above your chosen strike price, or rise, before the option expires.

Trading Philosophy Note: At Share Navigator, we much prefer applying this strategy to indices like the S&P 500 (referred to as the US 500 on IG) rather than individual share prices. The reason for this is that the volatility of major indices tends to be structurally lower and more predictable than that of single stocks, therefore the risk of wild swings in market prices that could quickly move a position into a loss is significantly reduced.

SP 500 Example

Today (Nov 12th 2025) the SP 500 is trading at $6787, we decide to place a high probability tax free trade by selling the December $6400 Put Option. Here are the trade details:

Current US 500 Price: $6787
Action: Sell Put Option
Strike Price: $6400 (An Out-of-the-Money, or OTM, strike, which is below the current price)
Expiry: Dec 19th (37 days to expiry)
Premium Received (Sell Price): $27.19 per point
Bet Per Point: $10
Initial Margin Required (Example): €2,976 (Margin is platform-dependent)
Probability of Profit (POP): 94%

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Resulting Position

Calculating Profit and Loss

Maximum Profit (The Premium Collected): Your maximum profit is fixed and occurs if the US 500 stays above the $6400 strike until expiry. The option expires worthless, and you keep the initial credit.

Maximum Profit = Premium Received times Bet Per Point

SP 500 Maximum Profit = $27.19 times $10 = $271.90

Break-Even Point: This is the index price at which your losses begin to equal your premium profit.

Break-Even Price = Strike Price - Premium Received

SP 500 Break-Even Price = $6400 - $27.19 = $6372.81

As long as the US 500 closes above $6372.81 on Dec 19th, you will make a profit.

What about potential losses?

Potential Losses = Breakeven price minus share Price (when below strike price) times Bet size.

Because the Short Put is 'Naked' losses continue to mount as the further the share price drops below the breakeven price.

Examples:

If Share price falls to 6300: $6371.81 minus $6300 times $10 = $718.10
If Share price fall to 6200: $6371.81 minus $6200 times $10 = $1,718.10

But remember the probability of profit is extremely high!

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Module 2: Probability, Volatility, and Timing

The High Probability of Profit (POP): Why 94%?

The high Probability of Profit (POP) of 94% is a key characteristic of this strategy. This high probability stems from two key factors inherent in the trade's structure:

The Safety Buffer: By selecting an Out-of-the-Money (OTM) strike price ($6400) that is significantly below the current market price ($6787), you build a large buffer. The index only needs to stay above $6400 for the option to expire worthless.
The Breakeven Advantage: Because you collected a premium $27.19, your effective break-even point ($6372.81) is even lower than the strike price. This buffer against adverse price movement is why your POP (94% chance of being above the break-even) is higher than the chance of the strike itself expiring OTM.
In essence, premium selling strategies give you multiple ways to win: the underlying index can rise, stay flat, or even fall slightly, and you still profit.

The Critical Role of Implied Volatility (IV)

Implied Volatility (IV), now at 20.476% in your example, plays a dual role:

The Entry Rule: The best time to place a short put trade is when Implied Volatility is historically high. High IV inflates option premiums, allowing you to "Sell High" and receive a slightly larger initial credit.
The current IV is considered Low so this would not (in relaity) be an opprtune time to place this trade.
The Profit Rule: A subsequent drop in IV will reduce the option's value, allowing you to buy the option back cheaper for a profit before expiry, even if the underlying index has not moved significantly.

Optimal Timing: The Power of Time Decay (Theta)

Options are wasting assets, meaning their value erodes over time due to Theta (time decay). As a seller, Theta is your friend. The ideal window for selling options is typically around 30 to 60 days to expiry (DTE). Your 37 DTE trade benefits optimally from time decay, which accelerates rapidly as expiry approaches.

Module 3: Trade Management and Risk Mitigation

Managing the Trade Before Expiration

Successful options trading relies on active management, not just waiting for expiry.

Taking Profit Early: Most professional traders aim to close a profitable short put position when they have realized 50% to 80% of the maximum potential profit. You should aim to Buy to Close the put option for a price between 5.44 and 13.60 (50% to 80% of the premium collected). Closing early locks in profit, reduces risk exposure, and frees up capital (recycling capital) for new trades.
Defensive Action - Rolling the Position (The Adjustment): If the market moves against you but you remain bullish, you can adjust the trade by performing a roll. This involves simultaneously Buying to Close the existing short put and Selling to Open a new put option with a later expiration date (rolling out) and/or a lower strike price (rolling down). This adjustment is ideally done for a net credit, increasing your overall premium collected and giving the trade more time to recover.
Take the Loss Early: We have a 93% success rate with this strategy but that means 1 in every 10 need some sort of management. If circumstances chnage and you feel that the SP 500 will no longer trade above 6400...you should buy back to close out the position at a loss.

Management and Settlement At Expiration

The final action depends on the US 500 price relative to your strike price on the expiry date (Dec 19th).

Scenario A: Out-of-the-Money (OTM) - Price above $6400
- Action: Do nothing. Since this is a cash-settled spread bet option, the contract simply expires worthless.
- Result: You realize the full Maximum Profit of $271.90. The margin (€2,976) held on the position is released back into your trading account.
Scenario B: In-the-Money (ITM) - Price less than $6400
- Action: The contract is cash-settled. The loss is automatically calculated as the difference between the strike price ($6400$) and the closing US 500 price, minus the premium received.
- Result: You may incur a loss that is debited from your trading account.

Defining Risk with the Bull Put Spread (The Hedge)

To address the substantial risk in a structured way, the best practice is to execute a Bull Put Spread. This involves simultaneously Selling the Put at the higher strike ($6400) and Buying a second, cheaper Put at a lower strike (e.g., a $6300 strike) to cap your maximum potential loss.

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Module 4: The Spread Betting Advantages and Product Structure

Tax-Exempt Trading (UK and Ireland)

A highly attractive benefit for traders in the UK and Ireland is the tax treatment of spread betting profits.

IG Index Clarification (Nov 12th 2025):

Options traded within a spread betting account in Ireland are tax free. Profits from spread betting, including options, are not subject to capital gains tax or stamp duty in Ireland. This applies regardless of whether your account is denominated in euro or another currency. There are no extra fees or tax implications specifically mentioned for operating a spread betting account in a different base currency, such as euro.

Disclaimer: This tax-exempt status usually applies to retail traders. Tax laws can change and depend on individual circumstances, so please seek independent tax advice.

The Spread Bet Product Structure vs. Listed Options

The key to the tax status and the nature of the trade is the distinction between the accounts:

Spread Bet Account (Your Trade): In this account, you are not purchasing the physical options contract. Instead, you are trading on the movement in the option’s price through a cash-settled bet. This means you do not have the right or obligation to buy or sell the underlying instrument. Profits and losses are realized as the option’s price moves, and the trade is settled in cash. You are speculating on the price of the option itself, not owning the option contract.
Options Trading Account (e.g., US Options and Futures): This distinct account allows access to US listed options and futures, which come with the full rights and obligations of owning the actual contract (e.g., assignment, physical delivery). This account structure typically has different tax implications.

No Daily Overnight Financing

Options offered by IG are often based on a futures style (Quarterly Bets). For longer-term trades like your 37-day option:

The cost of financing is Built-In to the option's quoted price.
This means there is no separate, visible, cumulative daily interest charge eroding your premium profit, making it a highly capital-efficient way to hold a position for a longer duration.

🚀 Summary

The Short Put Options Spread is a high-probability, income-generating strategy best initiated during periods of high Implied Volatility on an asset you are bullish on. When executed as a Bull Put Spread on a spread betting account, it delivers defined risk alongside the tax-exempt and cost-efficient advantages unique to the platform's structure in the UK and Ireland.

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