A bearish option strategy that involves selling (shorting) a share of stock and at the same time selling (or shorting) a near-term put option on the same stock. By doing so, an investor seeks to create regular income, though at a great deal of risk because of the short selling (and the corresponding higher margin). The position may also be constructed in a manner that a short futures position is combined with a short put to cover the position in the underlying asset.
The payoff or reward of a covered put is the difference in the price of the short underlying and the strike price of the short put plus the the option’s premium (credit amount):
Payoff = (initial underlying price – strike price) + premium
The covered put is also called a married put.
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