Short Covered Put
A covered put is a put option sold against a short futures position. Premium income is earned if futures prices are stable to lower. In the event the options contract is exercised, it will be offset by the short futures position. This position is bearish and is helped by reduced volatility and the passage of time.
Profits are limited on the downside; losses are unlimited as prices rally. For a hedger, the premium of the put increases income, while offsetting the price level of the physical product.
Position Premium Dollar Premium Delta Sell one $20 crude oil futures -1.00 Sell one $18 put - Net credit - Net delta $0.50 $0.50 $500 $500 +.29 Maximum risk Unlimited on the upside -.71 Maximum profit $2.50 per barrel or $250 per position Break-even futures price $20.50 Position Premium Dollar Premium Delta Sell one $260 gold futures -1.00 Sell one $250 gold put - Net credit - Net delta $3.00 $3.00 $300 $300 +.30 Maximum risk Unlimited on the upside -.70 Maximum profit $13.00 per oz. or $1,300 per position Break-even futures price $263 per oz.
THERE IS A RISK OF LOSS IN FUTURES TRADING AND IS NOT SUITABLE FOR
ALL INVESTORS. ONLY RISK CAPITAL SHOULD BE USED WHEN TRADING FUTURES.
Copyright 2008 Capitol Commodity Services, Inc. All Rights Reserved.
Education
- Futures Education
- Options Information
- Options Strategies
- Long At-the-Money Call
- Short Out-of-the-Money Call
- Covered Call
- Ratio Write
- Long Out-of-the-Money Call
- Long At-the-Money Put
- Short Out-of-the-Money Put
- Short Covered Put
- Bull Call Spread
- Bear Call Spread
- Bear Put Spread
- Bull Put Spread
- Long At-the-Money Straddle
- Long Strangle
- Short At-the-Money Straddle
- Short Strangle
- Call Ratio Backspread
- Put Ratio Backspread
- Synthetic Long Put
- Synthetic Long Call
- Synthetic Short Futures
- Synthetic Long Futures
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