---
description: "A sell-write strategy combining short stock with a short put at strike K, generating income while maintaining a neutral-to-bearish position."
tags: [options, income, covered, bearish]
---

# Covered Put

**Section**: 2.3 | **Asset Class**: Options | **Type**: Income

## Overview
The covered put (a.k.a. "sell-write") strategy amounts to shorting stock and writing a put option with strike K against the short stock position. The trader's outlook is neutral to bearish. It has the same payoff as writing a naked call and allows the trader to generate income by periodically selling OTM put options while maintaining the short stock position.

## Construction
- Short 1 share of stock at price S0
- Sell 1 put option at strike K, receiving net credit C

Net position: short stock + short put

## Payoff Profile
f_T = S0 - S_T - (K - S_T)+ + C = S0 - K - (S_T - K)+ + C

- Breakeven: S* = S0 + C
- Max profit: P_max = S0 - K + C  (achieved when S_T <= K)
- Max loss: L_max = unlimited  (stock can rise without bound)

## Key Conditions / Signals
- Neutral to mildly bearish outlook on the underlying
- Elevated implied volatility makes collected premium more attractive
- Suitable for income generation when the trader is comfortable with unlimited upside risk

## Notes
The covered put strategy is symmetrical to the covered call strategy. The short stock position carries unlimited loss potential if the stock rises; the collected put premium provides only limited cushion.