When do I breakeven when utilizing a Covered Put strategy?

The breakeven is defined as Varies.

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Level

Beginner

Long Call Long Put Cash Secured Put Covered Call Covered Put Protective Call Protective Put Long Strangle

Intermediate

Long Straddle Call Credit Spread Call Debit Spread Collar Put Credit Spread Put Debit Spread Long Call Broken-Wing Butterfly Long Call Butterfly Short Iron Butterfly Short Iron Condor Long Put Butterfly Bearish Broken-Wing Butterfly

Advanced

Call Backspread Put Backspread

Advanced ** Risk of Ruin

Short Call Short Put Short Straddle Short Strangle Bearish Risk Reversal Call Frontspread Put Frontspread Risk Reversal Synthetic Short Synthetic Long

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Option Strategies Details

Q: What is the max loss of a Covered Put?

The max loss is There is no potential 'loss' on the options contract, but this trade creates 'opportunity risk'. If the stock price decreases significantly below the strike price of the sold Put, the trader misses out on that additional price decrease because she is obliged to buy 100 shares at the strike price..

Q: What is the typical application of a Covered Put?

The typical applicatio is: 1. Reduce the cost basis of shares 2. Generate a yield from short shares 3. Systematic profit-taking.

Setup

Short 100 Shares + Sell 1 OTM Put

Typical Application

1. Reduce the cost basis of shares 2. Generate a yield from short shares 3. Systematic profit-taking

Volatility forecast

Down

Price forecast

Neutral

Breakeven

Varies

PnL Equivalent

Short Call

Max contract loss

There is no potential 'loss' on the options contract, but this trade creates 'opportunity risk'. If the stock price decreases significantly below the strike price of the sold Put, the trader misses out on that additional price decrease because she is obliged to buy 100 shares at the strike price.

Max position loss

The cost basis of the shares minus the current price of the shares plus the credit received for selling the Put. (Theoretically the loss can be infinite, here is a non-infinite example: you are short 100 shares of stock XYZ with cost basis $100 per share and you sell a $95P for $3. Stock XYZ goes to $200. Your loss is $10,000 (the cost of the shares) - $20,000 (the current price) + $300 (the credit received for selling the Put) = -$9,700.)

Covered Put

Level: Beginner

1 Leg

Credit

Beginner

Other names

Covered Put

You sell (or are already short) 100 shares and sell 1 OTM Put

Description

A trader who is short 100 shares of stock may sell (or write) a Covered Put. The trader receives a credit, called a premium, for selling the Put and is obliged to buy those 100 shares at the strike price of the Put.