What is a Covered Put?
A Covered Put means you are short the underlying stock or futures and simultaneously sell a put option below the current price. The sold put generates additional premium income on your short position. If the stock falls, the short stock profits but the sold put may be exercised against you — limiting how much you benefit from the decline. It's the mirror image of a Covered Call.
This is an advanced strategy primarily used by traders who are already short a stock or futures contract. You sell a Put below your short entry price to collect additional income while waiting for the stock to fall. The risk: if the stock crashes aggressively below the sold put strike, your sold put creates an obligation to buy back at the strike, which can cap your short-selling profit.
⚠️ Important: This strategy requires an existing short position in the stock or futures. It is not suitable for most retail investors. Never sell a put naked on a short stock without understanding the assignment risk. The Covered Call (for long stock) is much more commonly used and more appropriate for most investors.
At a Glance
Max Profit
(Short Price − Put Strike) + Premium
Max Loss
Unlimited if stock rises sharply
Breakeven
Short Price + Premium Received
Type
Credit · Advanced
How to Set It Up
| Action | Type | Strike | Expiry | Qty |
|---|---|---|---|---|
| Sell | Stock/Futures | Already short in your account | — | 1 Lot |
| Sell | Put (PE) | OTM — below current price | 21–35 DTE | 1 Lot |
P&L Simulator
Covered Put
📊 Covered Put — Payoff Chart + P&L Calculator
Stock Short-Sell Price: 22000 · Current Price: 22000 · Put Strike Sold: 21500 · Premium Received: 75 · Lot Size: 75 · Price at Exit: 21200
When Should You Use This Strategy?
✓ When to Use / ✕ When to Avoid / ◉ IV / ◷ DTE
4 use items · 3 avoid items
⊞ Trade Table
0 legs · 4 scenarios
Key Points
- This strategy is only appropriate if you already have a short position. Do not create a naked short put just to implement this.
- The sold put effectively limits how much you benefit from a sharp crash. If a crash is your primary expectation, don't sell the put — just hold the short.
- Most retail traders are better served by the Covered Call strategy (for existing long positions). Covered Put requires active short position management.
- Always maintain sufficient margin for both the short stock/futures AND the sold put position.
