When Should You Use This Strategy?

Bearish but willing to lock floor price

Who Benefits Most?

Experienced short-sellers with conviction

Position Setup

The Covered Put consists of the following legs:

  • Sell 100shares
  • Sell 190 strike put at $2 premium

How Profit and Loss Work

Maximum Profit: Limited: (Stock entry − Put strike) + Premium

Maximum Loss: Unlimited: Stock can rise infinitely

Break-even Points: Stock entry + Premium

Timing & Time Horizon

30–60 days per roll

Most traders enter this strategy 30–60 days before their expected move, allowing enough time for the position to develop while avoiding excessive time decay on shorter-dated options.

Capital Requirements

High: margin for short shares

How to Manage the Position

Monitor closely; close put early if deep ITM

  • Monitor the position daily, especially as it approaches profitability
  • Set clear profit targets and exit rules before entering
  • Consider closing early to lock in gains rather than waiting for max profit
  • Be prepared to cut losses if the thesis is wrong

Key Risks & What to Watch

  • Unlimited loss on short shares
  • Assignment forces stock purchase

Model Before You Trade

Every strategy performs differently based on entry price, strike selection, and premium levels. Use the interactive Covered Put calculator to model the payoff with your expected entry, strikes, and premiums before committing capital.

Educational information only. This guide explains how the strategy works mathematically and typically behaves. It is not investment advice, and past performance does not guarantee future results. Options trading involves significant risk, including the potential loss of premium paid. Paper trade or use small positions while learning.