Covered Put
A covered put is an options strategy with undefined risk and limited profit potential that combines selling stock with a short put option. Covered puts are used to generate income if an investor is moderately bearish while short a stock.
Kirk Du Plessis
Apr 19, 2021
Writing covered puts is a bearish options trading strategy involving the selling of an ATM or OTM put option below the market price while shorting 100 shares of the underlying stock. Selling the put option takes in a credit that is then used to widen your break-even point above where you originally sold the shares of stock. For example, if you are short stock at $50, and selling the put option collected $1.50 in credit, your new break-even price would be $51.50 for the overall position. Hint: this strategy's payoff diagram looks identical to just simply using a short call above the market and is less capital intensive.
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