Short selling or selling options short is the sale of an option which is not owned by the seller.
A short seller of calls is obligated to sell stock at the strike price by expiration if the option expires ITM.
A short seller of puts is obligated to buy stock at the strike price by expiration if the option expires ITM.
Selling options short creates a profit when the option premiums decline below the selling price. In the case of short calls, a bearish option position (negative deltas), the option premiums will lose value (profit) as the price of the stock either declines or stagnates (time decay). In the case of short puts, a bullish option position (positive deltas), the option premiums will lose value (profit) as the price of the underlying stock either advances or stagnates (time decay).
Short selling is the opposite of being long or buying options, and is commonly done due to the decay or time value erosion of options.
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