Types of short options on futures

Short Call – Bearish Option Strategy

Call option “writers” receive income (option premium) in return for the liability of honoring the option buyer’s right to buy the futures contract at the strike price. A short call is an eroding asset to the buyer and an eroding liability to the seller.

The buyer has the right, but not the obligation to take delivery of the underlying futures contract at the stated strike price but the seller is obligated to accept the assignment of a short futures contract at the strike if the option is exercised. The seller's risk of being forced to honor the buyer’s rights diminishes with time; all else being equal the value of the option will erode.
In a nutshell, the seller of a call option keeps the premium collect if the trade is held to expiration and the futures price at that time is below the strike price of the call option.

Short Put – Bullish Option Strategy

Put “writers” receive income (option premium) in return for the liability of honoring the option buyer’s right to sell the futures contract at the strike price. If exercised, the option buyer has opted to exercise the right to go short a futures contract at the strike price and the put seller is obligated to buy the futures at the same price. Identical to a short call, a short put is an eroding asset to the buyer and an eroding liability to the seller. Also, the seller's risk of being forced to honor the buyer's rights diminishes with time and volatility.

To summarize, if held to expiration, the seller of a put option keeps the entire premium collected if the futures market is trading above the strike price of the put. We’ll go over an example of a short put to give you a clearer picture of how a short option trade works.

Short Strangle – Neutral Option Strategy

Some option sellers practice what is known as a delta neutral strategy in which both call options and put options are sold simultaneously to create a trade without any directional bias. In its simplest form, a short commodity option strangle seller sells a call for every put sold; generally the strike prices are equidistant to the current futures price.

The advantage of selling an options strangle in the futures market, as opposed to selling only one side of the trade (a call or a put), is increased profit potential and more room for error. Obviously, by selling both a call and a put, the trader has automatically doubled the potential gain on the trade. Further, the sale of both calls and puts along with the additional premium collected, provides a bigger buffer to cushion losses should the futures price trade beyond the strike price of either commodity option. Accordingly, many believe this to be a lower risk strategy relative to selling calls or puts outright on a directional basis.