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.

Covered Put Option

A situation in which an investor writes an option while holding an equal and opposite position on the underlying asset. A covered call option occurs when the investor owns the underlying asset and writes a call so that the underlying is on hand to sell to the option holder if the option is exercised. A covered put option occurs when the investor writes a put and has enough cash to cover the strike if the put is exercised. It is thought that utilizing covered options is a beneficial tactic as the investor may profit from the option premium.
References in periodicals archive ?
She co-wrote Tracey Ullman's 1983 UK No4 hit Breakaway and Annie Lennox and Al Green covered Put a Little Love in Your Heart in 1989, reaching No9 in the US.
The Sheffield lads have already covered Put Your Dukes Up John and invited the Little Flames to support them at their run of secret gigs over the last few weeks.
A covered put writer's profit potential is limited to the premium received and the difference between the strike price of the put and the original price of the stock shorted.
In addition, the Fund may write cash covered put options in respect of securities in which the Fund is permitted to invest.
the Option Advisor, may at its discretion selectively write covered call and cash covered put options to generate additional distributable income for the Fund.