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Bearish strategy · Advanced

Covered Put

Market outlook Moderately bearish

Short shares with short put limiting profit below strike.

Advanced InstitutionalVery High risk30–60 days per roll

Greek profile

DeltaNegative
ThetaLong
VegaShort
GammaShort
RhoMedium

Negative delta from short stock, partly offset by the short put's positive delta. Collects theta from the put; carrying cost and borrow risk on the short shares add rate sensitivity beyond the options legs.

→ Read the full Greeks 101 guide

When to use it

You have a strong bearish view, are willing to hold a short stock position, and want to collect additional premium by selling a put against it — accepting that your maximum gain on the trade is capped once the stock falls to the put's strike. It's a strategy for experienced short-sellers, not a beginner income play.

Best for

Experienced short-sellers with strong conviction and existing margin approval, who understand that the short stock leg alone carries unlimited loss if the trade goes against them. It's not well suited to traders looking for a defined-risk income strategy, since the risk profile here is materially different from covered calls or credit spreads.

Capital needed

High: margin for short shares

Management

This position needs closer monitoring than most income strategies, since the unlimited risk sits on the short stock leg, not the put. If the put moves deep in-the-money, many traders close it early to lock in the value rather than risk early assignment forcing a stock purchase at an inopportune time; if the stock rallies against the short position, traders typically cut the loss rather than wait for a reversal.

Maximum profit

$1,200 per default position

Maximum loss

Unlimited

Break-even

$102

Key risks

Unlimited loss on short shares
Assignment forces stock purchase

Default legs

Sell 100 stock position
Sell 1 90 put at 2 premium

Reading the result

The graph recalculates from the visible legs. Same-expiry positions show expiration payoff; mixed-expiry positions show a dated theoretical valuation with remaining time value. It is not a price forecast.

Maximum profit—

Maximum loss—

Reward / risk—

Break-even price—

Position analyticsEarliest-expiry P&L

Valuation curveCurrent spot

X: underlying price at valuation · Y: profit / lossPer complete position · standard 100× option multiplier

Current riskBlack–Scholes position Greeks · day 0

Dollar-scaled for each leg's quantity, multiplier, expiry, and IV. Theta is per day; vega and rho are per one percentage-point move.

Delta—

Gamma—

Theta / day—

Vega / IV pt—

Rho / rate pt—

Per-leg contribution
Leg	Delta	Theta/day	Vega

Strike configurations

Covered Put variations

OTM covered put

OTM

Sell a put well below the short stock's entry price for a smaller premium but more room before the floor caps further gains.

Key difference: Lower income yield per cycle, but less chance of early assignment on the put.

Best for: Short-sellers who mainly want mild income without capping realistic downside profit too early.

Near-the-money covered put

ATM

Sell a put close to the current stock price for maximum premium income.

Key difference: Highest premium collected per cycle, but profit is capped almost immediately if the stock falls.

Best for: Income-focused short-sellers comfortable being assigned and closing the short position early.

Common questions

Covered Put FAQ

Why is a covered put considered high risk despite generating income?

Greeks & Risk

The short stock leg carries theoretically unlimited loss if the stock rallies — the put premium only offsets a small portion of that risk, unlike the defined-risk profile of most income strategies.

How is this different from a covered call?

Comparisons

A covered call combines long stock with a short call for bullish income; a covered put combines short stock with a short put for bearish income — they're mirror images of each other.

What does it take to short the stock in the first place?

Setup

You need margin approval and available shares to borrow from your broker, plus ongoing margin maintenance, since short selling is a margin-intensive strategy in its own right.

Why is this rarely recommended for less experienced traders?

When to Use

Combining unlimited-risk short stock with an obligation from the short put adds complexity most beginner and even intermediate income strategies avoid by using defined-risk spreads instead.

Deep dive

Read the full Covered Put guide

Detailed explanations, management techniques, and real-world scenarios

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Scenario Lab

Test price, time, and IV

Explore how this position changes before expiration

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Quick reference

Strategy FAQ

Quick answers about when to use, capital needed, and key risks

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Profit and loss

Options profit calculator

Compare max profit, max loss and break-even across common strategies

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Custom calculator

Build a multi-leg options strategy

Combine calls, puts, stock, quantities and different expirations

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Risk sensitivity

Calculate options Greeks

Inspect Delta, Gamma, Theta, Vega and Rho

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Same market view

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Same experience level

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Model boundary

This calculator uses exact intrinsic value at a leg’s expiration and Black–Scholes theoretical value while that leg remains open. Position Greeks use the same visible legs and model assumptions. Results exclude fees, tax, liquidity, margin, early exercise and assignment behavior. Educational illustration only—not financial advice.

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