Sell stock Sell a single put contract Wait for the put to be exercised or to expire to realize the profit As shown on the risk / reward chart (view the full size chart), the risk of a short covered put is high, as there is no protection if the stock price moves significantly upward (against the stock trade). The risk of a short covered put is calculated as :
Maximum Risk = Unlimited
Loss = Price of Stock - Purchase Price of Stock - Premium Received
The reward of a short covered put is limited to the premium received for the put (for an at the money, or in the money put), or to the difference between the stock and strike prices plus the premium received for the put (for an out of the money put). The profit of a short covered put is calculated as :
Maximum Profit = Limited
Profit = Purchase Price of Stock - Strike Price + Premium Received
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