Covered Put

Covered put

A put option position in which the option writer also is short the corresponding stock or has deposited, in a cash account, cash or cash equivalents equal to the exercise price of the option. This limits the option writer's risk because money or stock is already set aside. In the event that the holder of the put option decides to exercise the option, the writer's risk is more limited than it would be on an uncovered or naked put option.

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Covered Put

A situation in which an investor writes a put while holding an equal and opposite position on the underlying asset. That is, an investor has a covered put when he/she writes a put and has enough cash to cover the strike if the put is exercised, or if he/she has short sold the put. It is thought that utilizing covered puts (and covered options generally) is a beneficial tactic because the investor may profit from the option premium if the option is not exercised and is less likely to suffer a loss if the option is exercised.