Compare Strategies:

Short Put Vs Covered Put (Married Put) Options Trading Strategy Comparison

Compare Short Put and Covered Put (Married Put) options trading strategies. Find similarities and differences between Short Put and Covered Put (Married Put) strategies. Find the best options trading strategy for your trading needs.

Short Put Vs Covered Put (Married Put)

  Short Put Covered Put (Married Put)
Short Put Logo Covered Put (Married Put) Logo
About Strategy A short put is another Bullish trading strategy wherein your view is that the price of an underlying will not move below a certain level. The strategy involves entering into a single position of selling a Put Option. It has low profit potential and is exposed to unlimited risk. A short put strategy involves selling a Put Option only. For example if you see that the shares of a Company A will not move below Rs 1000 then you sell the Put Option of that stock at Rs 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this trade. However, if the price of the underlying moves below 1000 then you will incur unlimited losses. The Covered Put is a neutral to bearish market view and expects the price of the underlying to remain range bound or go down. In this strategy, while shorting shares (or futures), you also sell a Put Option (ATM or slight OTM) to cover for any unexpected rise in the price of the shares. This strategy is also known as Married Put strategy or writing covered put strategy. The risk is unlimited while the reward is limited in this strategy. How to use a Protective Call trading strategy? The usual Covered Put looks like as below for State Bank of India (SBI) Shares which are currently traded at Rs 275 (SBI Spot Price): Covered Put Orders - SBI Stock OrdersSBI Strike Price Sell Underlying SharesSell 100 SBI Shares ... Read More
Market View Bullish Bearish
Strategy Level Beginners Advance
Options Type Put Put + Underlying
Number of Positions 1 2
Risk Profile Unlimited Unlimited
Reward Profile Limited Limited
Breakeven Point Strike Price - Premium Futures Price + Premium Received

When and how to use Short Put and Covered Put (Married Put)?

  Short Put Covered Put (Married Put)
When to use?

Short Put works well when you're Bullish that the price of the underlying will not fall beyond a certain level.

The Covered Put works well when the market is moderately Bearish

Market View Bullish

When you are expecting the price or volatility of the underlying to increase marginally.

Bearish

When you are expecting a moderate drop in the price and volatility of the underlying.

Action
  • Sell Put Option

A short put strategy involves selling a Put Option only. So if you see that the shares of a Company A will not move below a 1000 then you sell the Put Option of that stock at 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this deal. However, if the price of the underlying moves below 1000 than you will incur losses.

Sell Underlying Sell OTM Put Option

Suppose SBI is trading at 300. You believe that the price will remain range bound or mildly drop. The covered put allows you to benefit from this market view. In this strategy, you sell the underlying and also sell a Put Option of the underlying and receive the premium. You will benefit from drop in prices of SBI, the Put Option will minimize your risks. If there is no change in price then you keep the premium received as profit.

Breakeven Point Strike Price - Premium
Futures Price + Premium Received

The break-even point is achieved when the price of the underlying is equal to the total of the sale price of underlying and premium received.

Compare Risks and Rewards (Short Put Vs Covered Put (Married Put))

  Short Put Covered Put (Married Put)
Risks Unlimited

There is no limit to losses incurred in the trade. The risk is when the price of the underlying falls, and the Put is exercised. You are then obliged to buy the underlying at the strike price.

Unlimited

The Maximum Loss is Unlimited as the price of the underlying can theoretically go up to any extent.

Loss = Price of Underlying - Sale Price of Underlying - Premium Received

Rewards Limited

The profit is limited to premium received in your account when you sell the Put Option.

Limited

The maximum profit is limited to the premiums received. The profit happens when the price of the underlying moves above strike price of Short Put.

Maximum Profit Scenario

Underlying doesn't go down and options remain exercised.

Underlying goes down and Options exercised

Maximum Loss Scenario

Underlying goes down and options remain exercised.

Underlying goes up and Options exercised

Pros & Cons or Short Put and Covered Put (Married Put)

  Short Put Covered Put (Married Put)
Advantages

It allows you benefit from time decay. And earn income in a rising or range bound market scenario.

Its an income generation strategy in a neutral or Bearish market. Also allows you to benefit from fall in prices, range bound movements or mild increase.

Disadvantage

It is a high risk strategy and may cause huge losses if the price of the underlying falls steeply.

The risks can be huge if the prices increases steeply.

Simillar Strategies

Bull Put Spread, Covered Call, Short Straddle

Bear Put Spread, Bear Call Spread







Search Chittorgarh.com:

Download Our Mobile App

Android App iOS App