Enter the price of the higher put and the price of the lower put. Sell the
higher put and buy the lower put. This calculator will provide the profit
and yield. Enter the higher put price strike for price paid. Enter the current
How does selling a covered put work?
Talk to your brokerage. Usually, if you sell a covered put, you agree
to buy the stock at the price of the put. You get to keep the money from
selling the options after the transaction is completed. If the price of
the stock on the day of expiration is below the put price, you will buy
those shares at the agreed price. If the stock price on expiration day
is above the put price, then you do not have to buy those shares at the
put price. You keep the money from selling the options as pure profit.
Obviously, the stock can decline beyond the price of the put and you could
lose more money because you agreed to buy at a higher price.
What is a spread put?
Since you can lose money if the stock keeps on dropping below your covered
put price, it would be wise to have some insurance. If you buy the put
at the next lowest price, this put will increase in value as the share
price declines. The covered put is similar to selling stocks short. As
the price declines, the negative value of the covered put declines.
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About the site and its author: Joseph K. Sunny, Jr., M.D. Most of the
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