Covered Put option strategy
Covered Put holds a short future and sells an OTM Put against it. The put premium adds income and a small cushion, in exchange for capping the downside profit at the put strike.
Payoff at expiry
Nifty, lot size 65 · Nifty future 23,104 · 27 Oct 2026Legs
| Action | Option | Strike | Lots | Qty | Premium |
|---|---|---|---|---|---|
| SELL | Future | – | 1 | 65 | 23,104 |
| SELL | OTM Put | 23,050 | 1 | 65 | ₹145.96 |
How it works
- Sell 1 lot of the future at 23,104.
- Sell 1 OTM put at the 23,050 strike for ₹145.96, collecting the premium.
- You receive a net ₹9,487 upfront for the position. Your maximum profit is ₹12,965.
Below 23,249 you profit, up to ₹12,965.
Above 23,249 you lose, and the loss keeps growing as Nifty rises.
Set-up: Sell 1 lot Future and Sell 1 lot OTM Put.
What happens if Nifty moves
Profit or loss at expiry| Nifty at expiry | Move | Profit / loss |
|---|---|---|
| 21,700 | −6% | +₹12,965 |
| 22,400 | −3% | +₹12,965 |
| 22,850 | −1% | +₹12,965 |
| 23,100 | Unchanged | +₹9,715 |
| 23,350 | +1% | −₹6,535 |
| 23,800 | +3% | −₹35,785 |
| 24,500 | +6% | −₹81,285 |
How the Greeks affect it
When to use
When you are mildly bearish and do not expect the underlying to fall far below the put strike before expiry.
- Generates income on a short position.
- Premium raises the effective short price.
- Simple to manage.
Things to watch
- Downside profit is capped at the put strike.
- Upside risk is uncapped.
- Needs margin for both legs.
Covered Put: questions
What is a Covered Put strategy?
Covered Put holds a short future and sells an OTM Put against it. The put premium adds income and a small cushion, in exchange for capping the downside profit at the put strike.
When should you use a Covered Put?
When you are mildly bearish and do not expect the underlying to fall far below the put strike before expiry.
How do you set up a Covered Put?
Sell 1 lot Future and Sell 1 lot OTM Put.
What is the maximum profit of a Covered Put?
Limited to the futures price less the put strike plus the premium received.
What is the maximum loss of a Covered Put?
Unlimited if the underlying rises, reduced only by the premium received.
What is the breakeven of a Covered Put?
With Nifty at 23,104, the example on this page breaks even at 23,249 at expiry.