Business, Legal & Accounting Glossary
A covered put is a put option which is sold by an investor and which is covered (backed) by a corresponding number of short shares of the underlying security. A covered put may also be covered by deposited cash or cash equivalent equal to the exercise price of the covered put. Since a covered put is covered (or backed) in advance by stock or cash, a covered put represents a known and limited risk should the holder of the put choose to exercise the option of the covered put. The opposite of a covered put would be an uncovered or naked put. While a covered put defines and limits risk, a naked put represents potentially unlimited risk. Properly done, selling covered put options is a limited-risk way of creating cash flow within a portfolio.
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.
Definitions for Covered Put are sourced/syndicated and enhanced from:
This glossary post was last updated: 4th February, 2020