A short put option on an index where a trader can profit from a decline or sideways movement in the price of the underlying index with limited reward potential and unlimited risk.

For example, if a given stock index is trading at 1,000 and a trader sells one March put (strike 950) at $10. If the underlying stock index closes at 900, on expiration date, the trader will have to pay the buyer on assignment an amount of $50 * 100 (where every put involves 100 shares). The net loss will be:

Net loss = (50 * 100) – 1000 = 4050.