Short Put in Australia: 2025 Strategies & Income Potential

Australian investors are increasingly looking beyond traditional shares and ETFs to diversify income streams. In 2025, with the ASX expanding its options market and retail participation at an all-time high, short put strategies are drawing attention for their potential to generate steady returns. But how do short puts actually work, and what should you know about the risks, especially with new policy changes and margin rules this year?

What Is a Short Put? The Fundamentals Explained

At its core, a short put—sometimes called a ‘naked put’—is an options strategy where you sell (write) a put contract. This obligates you to buy a specified stock at a set price (the strike) if the option is exercised by the buyer, typically before or at expiry. In exchange, you receive a premium upfront.

• Best-case scenario: The share price stays above the strike price, the put expires worthless, and you keep the premium as profit.
• Downside risk: If the share price falls below the strike, you may be forced to buy the stock at the agreed price, even if it’s now worth less on the market.

For example, consider selling a put option on BHP at a $42 strike, expiring in one month. If BHP stays above $42, you pocket the premium. If it drops to $38, you must buy at $42, potentially incurring a loss offset somewhat by the premium received.

Why Short Puts Are Trending in 2025

This year, several factors are making short puts more attractive and accessible for Australians:

• ASX Options Growth: The ASX reported a 20% increase in options trading volumes in Q1 2025, with retail investors representing a growing share.
• Low Volatility, High Dividends: With the RBA holding rates steady and major ASX stocks showing resilience, investors are seeking alternatives to term deposits and dividend shares for extra yield.
• Margin Rule Updates: ASIC’s 2025 tightening of margin requirements for naked options means brokers now demand higher collateral for uncovered puts. This has increased the safety net for both investors and the system, but also requires more capital to participate.

Short puts can be particularly effective for those willing to own blue-chip stocks at lower prices, or for investors who want to generate income in sideways markets where share prices are not expected to move dramatically.

How to Use Short Puts in Your Portfolio

Short puts are not a set-and-forget strategy. Here’s how experienced investors are incorporating them in 2025:

• Target Quality Stocks: Focus on companies you’d be happy to own if assigned—think the banks, Telstra, or resource majors. This aligns risk with your investment goals.
• Select Strike Prices Wisely: By choosing a strike price below current market value, you set a ‘buy limit’ for the stock. If the option is exercised, you’re buying at a discount.
• Manage Margin and Capital: With ASIC’s new rules, ensure you have enough margin to cover potential assignments. Some brokers now offer covered put alternatives, pairing cash or existing shares as collateral.
• Monitor Expiry and Volatility: Premiums are higher when markets are volatile. In 2025, geopolitical events and earnings seasons are driving short-term spikes in put premiums, creating opportunities for active traders.

For example, an investor might sell puts on Woolworths at a 5% discount to the current price, collecting a premium that effectively boosts their yield—provided they’re prepared to own the shares if the market dips.

Risks and What’s Changed in 2025

While the appeal of short puts is clear, they carry significant risks:

• Downside Risk: If the underlying stock collapses, losses can be substantial. The premium received provides limited cushioning.
• Liquidity: Not all ASX stocks have deep options markets. Stick to high-volume names to avoid wide bid-ask spreads.
• Regulatory Oversight: ASIC’s updated 2025 guidelines mean brokers are more stringent about investor suitability and capital requirements for naked options. Expect more documentation and risk disclosure as part of the application process.

In response, many investors are pairing short puts with other strategies, such as covered calls or cash-secured puts, to manage risk and capital outlay. The 2025 landscape favours disciplined, well-capitalised traders who understand the mechanics and can handle potential assignments calmly.

Is Short Put Selling Right for You?

Short puts can generate extra income, especially in flat or rising markets, and offer a way to buy quality stocks at a discount. But with greater regulatory scrutiny and the need for larger capital buffers in 2025, they’re best suited to experienced investors with a clear strategy and risk management plan. If you’re confident in your market outlook and prepared for potential assignments, short puts could add a powerful income tool to your portfolio.