Options strategy: covered puts

A covered put is the process of shorting a stock and write (sells) put option on it to receive a premium for income. Once the put is in place, the trader's profit is capped at the put's strike price and the premium received from the sale. A huge disadvantage when using this strategy is that once the stock moves higher, the losses incurred by the trader will be substantial. This strategy is rarely used as traders would just assume a naked put strategy instead of a covered put.






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