Covered Put Calculator

By Yojana Mandon · Updated June 2026 · 2 min read · Risk disclaimer

A covered put shorts 100 shares and sells a put against them. It is the bearish mirror of a covered call: you collect premium and profit while the stock drifts down to the put strike, where your gain is capped — but a rally brings unlimited risk from the short shares.

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Key characteristics

• Short 100 shares + sell a put: income on a flat-to-falling stock.
• Max profit = (entry − put strike) × 100 + premium, reached at or below the put.
• Breakeven = short entry price + premium received.
• Unlimited risk to the upside — the short stock loses as the price rises.

When to use a covered put

Use it when you are mildly bearish on a stock you are already short, and you want to be paid while you wait for a slow decline. The short put adds premium income and defines the price at which your downside profit is capped.

It is the exact mirror of the covered call: instead of capping the upside of long shares, you cap the downside profit of short shares in exchange for a premium today.

Risks and management

The danger is a rally. Short stock has theoretically unlimited risk, and the small put premium barely cushions a sharp move up — treat this as a position that needs an exit plan and the borrow to stay short.

Many traders roll the short put down as the stock falls to keep collecting premium, and close the whole position if the trend turns up. Watch borrow costs and dividends, which you owe while short.

On the Greeks, the Covered Put is vega-negative — a fall in implied volatility (such as an earnings IV crush) works in your favour, and theta-positive, so time decay adds to the position each day it is held.

Managing the trade and common mistakes

Once you are in a Covered Put — short the stock and short a put against it — the position behaves very differently from a standalone short put. The short stock amplifies every move, so experienced traders set a clear profit target rather than riding the trade indefinitely. A common approach is to close or roll the short put when it has decayed to roughly 25–30 % of the original credit, banking theta gains before gamma risk picks up near expiration. If the stock has fallen sharply and the put is deep in the money, rolling the put down and out — to a lower strike and a later expiration — lets you collect additional credit while keeping the bearish short-stock exposure intact.

The most damaging mistake beginners make is ignoring the short stock leg entirely and treating the trade as if it were just a short put. The short stock carries theoretically unlimited upside risk: a sudden rally can cause losses that dwarf the put premium collected. Always define your maximum pain point on the stock leg before entry, and use a hard stop or a protective call to cap that exposure. A second common error is letting an in-the-money put expire without acting — early assignment on an American-style put is possible at any time, and if your short shares are called away through assignment, you may find your hedge evaporates at the worst moment.

Liquidity matters more than many beginners appreciate. Covered Puts are typically built on individual stocks rather than ETFs, and single-stock option spreads can be wide. Always use limit orders; market orders on illiquid strikes can cost you more in slippage than the entire credit collected. Watch the ex-dividend date carefully: if the underlying pays a dividend while you are short the stock, you owe that dividend to the lender of the shares, which erodes your net credit. Finally, because the position involves a short stock borrow, make sure your broker's borrow cost is factored into your break-even calculation before you enter.

Calculate it live

Use the free OptionProfit Covered Put calculator to load a live option chain, build the trade, and instantly see the payoff chart, breakevens, probability of profit, Greeks and a Monte Carlo simulation of outcomes.

Frequently asked questions

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