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Covered Put

 Profile Version / Simplified Version / Comprehensive Version

Purpose Of Covered Put
1. To Make Additional Profits From Your Short Stock Position
2. To Profit When Your Short Stocks Stay Stagnant


Expectations Of Covered Put
Down and Stagnant


Type Of Spread
Credit Spread


How To Use Covered Put?
Write (sell to open) 1 contract of nearest out of the money put option for every 100 shares you shorted.

Short 100 Shares + Sell 1 Put 		Covered Put Risk Graph Learn How To Read This Chart


Profit Potential of Covered Put :
The Covered Put's maximum profit occurs when the stock closes exactly at the strike price of the short put options at expiration.


Profit Calculation of Covered Put:
Maximum profit = (Short Stock Price - Strike Price) + Option Bid


Risk / Reward of Covered Put:

Maximum Profit: Limited

Maximum Loss: Unlimited


Break Even Point of Covered Put:
Break Even = Short Stock Price + Option Bid


Advantages Of Covered Put:

  • Able to profit even if your stock stays stagnant.

  • Able to offset losses if your stock rises instead of falls.


    Disadvantages Of Covered Put:

  • You must continue to hold your short stocks if you want to keep the short put options.

  • Your broker must allow you to short stocks in the first place.


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