Poor Man's Covered Put Calculator

Time & DiagonalbearishDefined Risk

Buy a deep ITM put and sell shorter-term OTM puts against it for bearish income exposure.

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What Is a Poor Man's Covered Put?

A poor man's covered put (PMCP) is the bearish mirror of the poor man's covered call. Instead of shorting 100 shares and selling a put against them, you buy a deep in-the-money long put that expires many months out and sell a shorter-dated out-of-the-money put against it. The result is a diagonal put spread that behaves like a covered put at a fraction of the capital and without the borrow costs or margin requirements of a short stock position.

The deep in-the-money long put has a delta near −0.80 to −0.90, so it gains close to a dollar for each dollar the stock falls. The short put, usually 30 to 45 days out, collects premium that decays quickly. Each cycle you can sell a new short put against the same long put, lowering your effective cost basis as long as the stock stays above the short strike.

At the front-month expiration the payoff curve rises as the stock falls and flattens once the stock drops below the short strike. Losses on a rally are limited to the net debit paid, which is defined and known in advance. Unlike a true short stock position there is no unlimited upside risk and no dividend obligation.

Setup

BUY1x DEEP-ITM PUT

SELL1x OTM1 PUT

Max Profit

Long put intrinsic value less net debit, capped by the short put

Max Loss

Net debit paid

Breakeven

Long put strike - net debit

Poor Man's Covered Put Example

XYZ trades at $100. You buy the $130 put expiring in 12 months for $33.50, which is $30.00 of intrinsic value plus $3.50 of time value, and you sell the $95 put expiring in 30 days for $1.50. The net debit is $32.00 per share, or $3,200 per spread. Shorting 100 shares would require roughly $5,000 of margin plus ongoing borrow fees.

Stock at expiration	Result
$100 (unchanged)	The short put expires worthless and you keep the $150. The long put is assumed to be worth $33.00 ($30.00 intrinsic plus $3.00 remaining time value). Position value is $3,300 against a $3,200 cost, a gain of $100.
$95	The short put finishes at the money and expires worthless. The long put is assumed to be worth $37.75 ($35.00 intrinsic plus $2.75 time value). Position value is $3,775, a gain of $575.
$90	The short put is $5.00 in the money and costs $500 to close. The long put is assumed to be worth $42.50 ($40.00 intrinsic plus $2.50 time value). Net value is $4,250 minus $500, or $3,750, a gain of $550. Gains flatten below the short strike.
$110	The short put expires worthless. The long put is assumed to be worth $24.00 ($20.00 intrinsic plus $4.00 time value). Position value is $2,400, a loss of $800.

Maximum loss is the $3,200 net debit if XYZ finishes above $130 at the far expiration. Breakeven at the far expiration is $98 (the $130 strike minus the $32.00 debit) if no further puts are sold. If both legs shared the same expiration the maximum profit would be the $35 spread width minus $32.00, or $300, but at the front-month expiration the long put still holds time value, so the gain near the $95 short strike is around $575.

When to Use a Poor Man's Covered Put

You are moderately bearish on a stock over the next several months and want to collect income while the decline plays out.
You want short exposure without the borrow fees, margin calls, or unlimited risk of shorting shares, or the stock is hard to borrow.
Front-month put implied volatility is elevated, so the puts you sell each cycle are rich relative to the long-dated put you own.
The stock has a clear downtrend or overhead resistance but you do not expect a crash, since a crash below the short strike caps the gain.
Typical entries buy a long put with −0.80 delta or deeper and 9 or more months to expiration, then sell a −0.20 to −0.30 delta put with 30 to 45 days remaining.

Risks to Understand

A sustained rally erodes the long put's intrinsic value and lowers its delta, so the position stops tracking the stock closely and recovery requires a larger reversal.
Put implied volatility typically falls when a stock rallies, compounding the loss on the long put, which has far more vega than the short put.
A sharp drop below the short strike caps the gain while the long put's time value shrinks, so the position may earn less than the stock falls.
If the short put is assigned you are long 100 shares. You can exercise the long put to sell them, but that forfeits its remaining time value, so selling the shares in the market and keeping the long put is usually better.
Deep in-the-money puts often have wide bid-ask spreads and low open interest, so slippage on entry and exit can eat a meaningful share of the expected profit.

Managing the Trade

Set the short strike below the long put's breakeven so that a sharp drop does not lock in a loss. The long strike minus the net debit should exceed the short strike.
Roll the short put when it has lost most of its value or when the stock approaches the strike. Rolling down and out collects more credit and follows the trend lower.
If the stock rallies, sell the next short put at a higher strike to collect meaningful premium, but keep it below the long put's effective cost basis.
Close or roll the long put when it has 3 to 4 months left, before its time decay accelerates.
Consider closing the whole position after a fast drop toward the short strike. Much of the maximum gain has been captured and the remaining reward-to-risk is poor.

Poor Man's Covered Put FAQs

What is a poor man's covered put?: It is a diagonal put spread that mimics a covered put. You buy a deep in-the-money, long-dated put in place of shorting 100 shares and sell a shorter-dated out-of-the-money put against it for income. Risk is limited to the net debit paid.
How is a PMCP different from shorting stock and selling a put?: A covered put requires a margin account, borrow fees, and carries unlimited risk if the stock rallies. The PMCP replaces the short shares with a long put, so the worst case is losing the debit. The cost is the time value in the long put and the fact that the position expires.
What happens if the short put is assigned?: You are assigned long 100 shares at the short strike. Most traders sell the shares in the market and keep the long put, or close everything. Exercising the long put to dispose of the shares works but wastes its remaining time value.
How do you calculate the breakeven on a poor man's covered put?: At the far expiration, breakeven is the long put strike minus the net debit paid, plus every short put premium collected. In the example that is $130 minus $32.00, or $98. At the front-month expiration the effective breakeven is higher because the long put retains time value.
Is a poor man's covered put a good strategy in a bear market?: It works well in a grinding downtrend where the stock drifts lower without collapsing, because you collect premium every cycle while the long put gains. In a crash the short put caps the gain and you may wish you held the long put alone.
Can I lose more than the net debit on a PMCP?: No. The long put fully covers the short put because its strike is higher, so at expiration the worst case is both puts expiring worthless and losing the debit. Early assignment can create a temporary stock position but the long put still protects it.

Related Strategies

Covered Put Bear Put Spread Diagonal Spread

What Is a Poor Man's Covered Put?

Poor Man's Covered Put Example

Stock at expiration	Result
$100 (unchanged)	The short put expires worthless and you keep the $150. The long put is assumed to be worth $33.00 ($30.00 intrinsic plus $3.00 remaining time value). Position value is $3,300 against a $3,200 cost, a gain of $100.
$95	The short put finishes at the money and expires worthless. The long put is assumed to be worth $37.75 ($35.00 intrinsic plus $2.75 time value). Position value is $3,775, a gain of $575.
$90	The short put is $5.00 in the money and costs $500 to close. The long put is assumed to be worth $42.50 ($40.00 intrinsic plus $2.50 time value). Net value is $4,250 minus $500, or $3,750, a gain of $550. Gains flatten below the short strike.
$110	The short put expires worthless. The long put is assumed to be worth $24.00 ($20.00 intrinsic plus $4.00 time value). Position value is $2,400, a loss of $800.

When to Use a Poor Man's Covered Put

You are moderately bearish on a stock over the next several months and want to collect income while the decline plays out.

You want short exposure without the borrow fees, margin calls, or unlimited risk of shorting shares, or the stock is hard to borrow.

Front-month put implied volatility is elevated, so the puts you sell each cycle are rich relative to the long-dated put you own.

The stock has a clear downtrend or overhead resistance but you do not expect a crash, since a crash below the short strike caps the gain.

Typical entries buy a long put with −0.80 delta or deeper and 9 or more months to expiration, then sell a −0.20 to −0.30 delta put with 30 to 45 days remaining.

Risks to Understand

A sustained rally erodes the long put's intrinsic value and lowers its delta, so the position stops tracking the stock closely and recovery requires a larger reversal.

Put implied volatility typically falls when a stock rallies, compounding the loss on the long put, which has far more vega than the short put.

A sharp drop below the short strike caps the gain while the long put's time value shrinks, so the position may earn less than the stock falls.

If the short put is assigned you are long 100 shares. You can exercise the long put to sell them, but that forfeits its remaining time value, so selling the shares in the market and keeping the long put is usually better.

Deep in-the-money puts often have wide bid-ask spreads and low open interest, so slippage on entry and exit can eat a meaningful share of the expected profit.

Managing the Trade

Set the short strike below the long put's breakeven so that a sharp drop does not lock in a loss. The long strike minus the net debit should exceed the short strike.

Roll the short put when it has lost most of its value or when the stock approaches the strike. Rolling down and out collects more credit and follows the trend lower.

If the stock rallies, sell the next short put at a higher strike to collect meaningful premium, but keep it below the long put's effective cost basis.

Close or roll the long put when it has 3 to 4 months left, before its time decay accelerates.

Consider closing the whole position after a fast drop toward the short strike. Much of the maximum gain has been captured and the remaining reward-to-risk is poor.

Poor Man's Covered Put FAQs

What is a poor man's covered put?

It is a diagonal put spread that mimics a covered put. You buy a deep in-the-money, long-dated put in place of shorting 100 shares and sell a shorter-dated out-of-the-money put against it for income. Risk is limited to the net debit paid.

How is a PMCP different from shorting stock and selling a put?

A covered put requires a margin account, borrow fees, and carries unlimited risk if the stock rallies. The PMCP replaces the short shares with a long put, so the worst case is losing the debit. The cost is the time value in the long put and the fact that the position expires.

What happens if the short put is assigned?

You are assigned long 100 shares at the short strike. Most traders sell the shares in the market and keep the long put, or close everything. Exercising the long put to dispose of the shares works but wastes its remaining time value.

How do you calculate the breakeven on a poor man's covered put?

At the far expiration, breakeven is the long put strike minus the net debit paid, plus every short put premium collected. In the example that is $130 minus $32.00, or $98. At the front-month expiration the effective breakeven is higher because the long put retains time value.

Is a poor man's covered put a good strategy in a bear market?

It works well in a grinding downtrend where the stock drifts lower without collapsing, because you collect premium every cycle while the long put gains. In a crash the short put caps the gain and you may wish you held the long put alone.

Can I lose more than the net debit on a PMCP?

No. The long put fully covers the short put because its strike is higher, so at expiration the worst case is both puts expiring worthless and losing the debit. Early assignment can create a temporary stock position but the long put still protects it.