Maximum Profit: The potential profit (excluding transaction costs) is limited to the net premium received (plus any interest on Treasuries/collateral).
Maximum Risk: Risk is very substantial, because the Index could fall by far more than the put premium collected. Theoretically, it could go to zero. The ancillary risk is underperforming in a (very) bullish market. Using the above example, if the strategy collects 2.5% of index value as put premium (or 50 points) and then the SPX moves higher by 3% (or 60 points) at expiration, the PUT strategy will gain, but underperform the broad market in that month.
Impact of Volatility: An option writing (selling) strategy benefits from falling volatility and is hurt by rising volatility.
Impact of Time: The time value portion of an option's total price decreases as expiration approaches. This is known as time erosion. Short put positions benefit from the passing of time with all else held constant.
**Risk of Early Assignment: NONE – SPX Index options are European-style exercise, meaning they can only be exercised/assigned at expiration.
**Potential Position Created at Expiration: NONE – SPX Index options are CASH-SETTLED.