Covered Put
Description
Holding a short position in the underlying while selling a put against it, collecting premium in exchange for capping the gain on the short.
Setup
- Sell (short) one unit of the underlying.
- Sell one put option, typically out of the money, against that position.
Context
The bearish mirror image of a covered call, used by a trader already short the underlying who wants to generate income while waiting for a decline.
Risk Profile
Loss grows without bound if the underlying rallies, offset only by the premium collected. Gain is capped at the entry price minus the strike, plus premium.
Pros
- Generates income on an existing short position.
- Premium cushions a modest rally.
- Straightforward to manage.
Cons
- Retains the short position's uncapped upside risk.
- Caps the profit if the underlying falls sharply.
- Requires margin for both legs.
Effect of Time
Time decay works in your favor on the short put, adding to the position's return each day.
Effect of Volatility
Rising implied volatility increases the premium collected but also raises the odds of assignment.
Look-Alike Strategies
Live Structure
| Position | Right | Ratio | Strike | Expiry | Premium | Fill Price | Est. Fee |
|---|---|---|---|---|---|---|---|
| Short | Underlying | 1 | — | — | $84532.5300 | $84532.5300 | $0.0000 |
| Short | Put | 1 | $84000.0000 | 24 Sep 2026 | $84.5340 | $76.0806 | $10.5668 |
Estimated Cost to Assemble
An estimate of what entering this structure right now would really cost: filling every leg by crossing the spread (the ask when buying, the bid when selling) instead of at the mid-price, plus an estimated exchange fee. Real fees and fills can differ from this estimate.
Payoff & Greeks vs. Underlying Price
The Greeks curves are a Black-Scholes model using each leg's current implied volatility, holding time to expiry fixed -- not live exchange data at every price, which only exists at the current price (dashed line).
Payoff at Expiration
This structure's value and profit/loss at expiration, at a handful of specific prices: every leg's strike, every breakeven, the current spot, and the chart's own range.
| Underlying Price | Value at Expiration | Profit / Loss | Return on Cost |
|---|---|---|---|
| $67100.0000 | -$84000.0000 | $617.0640 | +0.7% |
| $84000.0000 | -$84000.0000 | $617.0640 | +0.7% |
| $84532.5300 current breakeven | -$84532.5300 | $84.5340 | +0.1% |
| $100900.0000 | -$100900.0000 | -$16282.9360 | -19.2% |