Covered Put Calculator

Stock + OptionbearishUndefined Risk

Sell puts while short the underlying stock.

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What Is a Covered Put?

A covered put combines 100 shares of short stock with one short put on the same underlying. It is the mirror image of a covered call. You are already short the shares, so the put you sell is covered: if it is assigned, you buy shares at the strike price, which closes out your short position. The premium collected reduces the price at which the short sale stops being profitable.

The short put caps your profit on the way down. Below the strike, every dollar the stock loses is offset by a dollar lost on the put, so the position stops gaining. Above the short sale price, you carry the full risk of a short stock position, which is theoretically unlimited because there is no ceiling on how high a stock can go. The premium provides only a modest cushion against a rally.

The payoff diagram looks like short stock with the bottom sliced off. It profits one for one as the stock falls until it reaches the strike, then flattens. Above the breakeven it loses without limit. The covered put is a bearish to neutral position that suits traders who are already short and want to collect income while waiting for a moderate decline.

Setup

short100 shares of the underlying

SELL1x OTM1 PUT

Max Profit

Short stock price - strike + premium received

Max Loss

Unlimited (stock rises while short)

Breakeven

Short sale price + premium received

Covered Put Example

You are short 100 shares of XYZ sold at $100, and the stock trades at $100 with 30 days to expiration. You sell one $95 put for $2.00, collecting $200. The credit is yours regardless of what happens, and the position is bearish with a profit cap at $95.

Stock at expiration	Result
$90	The put is assigned and you buy 100 shares at $95, covering the short. Stock gain is $500 (sold at $100, bought at $95), plus the $200 credit, for a total of $700, the maximum profit.
$100 (unchanged)	The put expires worthless. The short stock is flat, so your profit is the $200 premium.
$102	Breakeven. The short stock has lost $200, exactly offset by the $200 credit. P&L is $0.
$110	The put expires worthless. The short stock has lost $1,000, cushioned by the $200 credit, for a net loss of $800.

Maximum profit is $700 (the $5 gap between the $100 short sale price and the $95 strike plus the $2.00 premium, times 100) if XYZ finishes at or below $95. Breakeven is $102. Maximum loss is unlimited, because the stock can keep rising while you are short.

When to Use a Covered Put

You are already short the stock and expect it to drift lower or trade flat over the next month, not collapse.
You would be comfortable covering the short at the strike price, so assignment is a welcome exit rather than a problem.
Implied volatility is elevated, making put premiums rich enough to justify capping the downside profit.
You want to earn income on a short position that is otherwise costing you borrow fees and dividends.
Typical entries use 30 to 45 days to expiration and a strike around the 20 to 30 delta below the stock.

Risks to Understand

Upside risk is unlimited. A takeover announcement or short squeeze can send the stock up 30 to 50 percent overnight, and the premium covers only a small fraction of that loss.
Profit is capped at the strike. If the stock falls sharply, you cover at $95 and miss the rest of the decline.
Short stock carries borrow costs and you owe any dividends paid while short. These ongoing costs eat into the option premium.
Hard-to-borrow stocks can be recalled by the lender, forcing you to cover at an inconvenient time while the short put remains open.
Early assignment of the put is possible when it is deep in the money, which closes your short earlier than planned but is rarely harmful since it delivers the maximum profit.

Managing the Trade

Close the put once it has lost most of its value and sell a new one at a lower strike or later expiration if you still expect the stock to fall.
If the stock rallies toward breakeven, decide quickly whether to cover the short, buy a protective call, or roll the put up for more credit. Unlimited risk positions should not be left unattended.
If the stock falls through the strike and you want to stay short, roll the put down and out: buy back the current put and sell a lower strike in a later expiration.
Avoid holding through earnings or other binary events unless you are prepared for a large gap higher.
Set a hard stop on the combined position at a level you can tolerate, since the option premium offers very little protection against a squeeze.

Covered Put FAQs

How does a covered put work?: You short 100 shares of stock and sell one put against them. If the stock falls to the strike, the put is assigned and you buy shares at the strike, closing the short at a profit. If the stock stays above the strike, the put expires worthless and you keep the premium while remaining short.
What is the max profit on a covered put?: Maximum profit is the short sale price minus the put strike plus the premium received, multiplied by 100. If you shorted at $100 and sold a $95 put for $2.00, max profit is $700. It is reached when the stock finishes at or below the strike.
Is a covered put risky?: Yes, more so than a covered call. Because you are short stock, the loss is unlimited if the stock rallies, and the put premium offsets only a small part of it. Most traders treat a covered put as a short-term income trade with a firm stop rather than a long-term holding.
What is the difference between a covered put and a covered call?: A covered call is long stock plus a short call, and profits when the stock rises moderately or stays flat. A covered put is short stock plus a short put, and profits when the stock falls moderately or stays flat. The covered call has limited downside equal to the stock value, while the covered put has unlimited upside risk.
What happens if a covered put is assigned?: You buy 100 shares at the strike price, which automatically covers your short position. The difference between your short sale price and the strike is locked in as profit, and you also keep the put premium. Your account is then flat the stock with no remaining exposure.
Why would anyone use a covered put instead of just shorting stock?: The put premium adds income and raises your breakeven, so the trade can still profit if the stock drifts slightly higher. The cost is a cap on profit if the stock collapses. It suits traders who expect a slow grind lower rather than a sharp drop.

Related Strategies

Covered Call Short Put (Naked Put)

What Is a Covered Put?

Covered Put Example

Stock at expiration	Result
$90	The put is assigned and you buy 100 shares at $95, covering the short. Stock gain is $500 (sold at $100, bought at $95), plus the $200 credit, for a total of $700, the maximum profit.
$100 (unchanged)	The put expires worthless. The short stock is flat, so your profit is the $200 premium.
$102	Breakeven. The short stock has lost $200, exactly offset by the $200 credit. P&L is $0.
$110	The put expires worthless. The short stock has lost $1,000, cushioned by the $200 credit, for a net loss of $800.

When to Use a Covered Put

You are already short the stock and expect it to drift lower or trade flat over the next month, not collapse.

You would be comfortable covering the short at the strike price, so assignment is a welcome exit rather than a problem.

Implied volatility is elevated, making put premiums rich enough to justify capping the downside profit.

You want to earn income on a short position that is otherwise costing you borrow fees and dividends.

Typical entries use 30 to 45 days to expiration and a strike around the 20 to 30 delta below the stock.

Risks to Understand

Upside risk is unlimited. A takeover announcement or short squeeze can send the stock up 30 to 50 percent overnight, and the premium covers only a small fraction of that loss.

Profit is capped at the strike. If the stock falls sharply, you cover at $95 and miss the rest of the decline.

Short stock carries borrow costs and you owe any dividends paid while short. These ongoing costs eat into the option premium.

Hard-to-borrow stocks can be recalled by the lender, forcing you to cover at an inconvenient time while the short put remains open.

Early assignment of the put is possible when it is deep in the money, which closes your short earlier than planned but is rarely harmful since it delivers the maximum profit.

Managing the Trade

Close the put once it has lost most of its value and sell a new one at a lower strike or later expiration if you still expect the stock to fall.

If the stock rallies toward breakeven, decide quickly whether to cover the short, buy a protective call, or roll the put up for more credit. Unlimited risk positions should not be left unattended.

If the stock falls through the strike and you want to stay short, roll the put down and out: buy back the current put and sell a lower strike in a later expiration.

Avoid holding through earnings or other binary events unless you are prepared for a large gap higher.

Set a hard stop on the combined position at a level you can tolerate, since the option premium offers very little protection against a squeeze.

Covered Put FAQs

How does a covered put work?

You short 100 shares of stock and sell one put against them. If the stock falls to the strike, the put is assigned and you buy shares at the strike, closing the short at a profit. If the stock stays above the strike, the put expires worthless and you keep the premium while remaining short.

What is the max profit on a covered put?

Maximum profit is the short sale price minus the put strike plus the premium received, multiplied by 100. If you shorted at $100 and sold a $95 put for $2.00, max profit is $700. It is reached when the stock finishes at or below the strike.

Is a covered put risky?

Yes, more so than a covered call. Because you are short stock, the loss is unlimited if the stock rallies, and the put premium offsets only a small part of it. Most traders treat a covered put as a short-term income trade with a firm stop rather than a long-term holding.

What is the difference between a covered put and a covered call?

A covered call is long stock plus a short call, and profits when the stock rises moderately or stays flat. A covered put is short stock plus a short put, and profits when the stock falls moderately or stays flat. The covered call has limited downside equal to the stock value, while the covered put has unlimited upside risk.

What happens if a covered put is assigned?

You buy 100 shares at the strike price, which automatically covers your short position. The difference between your short sale price and the strike is locked in as profit, and you also keep the put premium. Your account is then flat the stock with no remaining exposure.

Why would anyone use a covered put instead of just shorting stock?

The put premium adds income and raises your breakeven, so the trade can still profit if the stock drifts slightly higher. The cost is a cap on profit if the stock collapses. It suits traders who expect a slow grind lower rather than a sharp drop.