Covered Put Profit / Loss

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Break-Even Price: —
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Table of contents

If you expect a stock to fall but want to be paid while you wait, the covered put calculator shows what a short sale combined with a sold put earns, gives up and breaks even at. Enter the price you shorted at, the strike price and the premium income you collect, and you get your maximum profit, the price where you break even and your worst case at expiration. It also sets the trade beside a cash-secured put, the cash-backed alternative most investors compare it with.

How the covered put calculator works

This covered put strategy pairs two legs. Short stock means you sold borrowed shares, hoping to buy them back cheaper. A short put means you also sold a put option, collecting payment for the obligation to buy 100 shares at the strike price if the buyer exercises. Because you are already short, the position is "covered": any stock you are forced to buy simply closes out the short sale.

How it works: inputs and outputs

Four inputs drive every result, and each one is a number on your order ticket:

Sale price: what you received per share when you sold short.
Strike price: the level of the put you sold, usually at or a little below the sale price.
Premium received: what the put pays you per share, before the commission your broker charges.
Number of contracts: each contract covers 100 shares.

The calculator returns the best-case gain, the break-even price and the result at any final price you choose. It treats the trade as a plain expiration payoff, so it leaves out dividends, taxes, commissions and slippage. Think of it as a quick check of risk metrics rather than a full brokerage model.

Four numbered steps for the covered put calculator ending with a $495 maximum profit and $310 of premium collected — The four steps for entering the example trade and reading the results.

Short put position formulas

All of these formulas work per share, then scale by the lot size and the contract count. Let $S_0$ be the sale price, $K$ the strike price, $C$ the premium and $N$ the contracts.

Symbol	Meaning	Example value
$S_0$	Price per share when you sold short	$71.85
$K$	Strike price of the option you sold	$70.00
$C$	Premium you collect per share	$3.10
$N$	Contracts, each one round lot	1

Breakeven price

The breakeven sits above your sale price, because the premium cushions a rise by exactly its own size:

$$\text{BE} = S_0 + C$$

With the example inputs, $71.85 + $3.10 gives a break-even point of $74.95. Above that price, every extra dollar is a loss.

Maximum profit

When the price finishes at or below the strike, the put loses exactly what the short sale gains beyond that level, so the result freezes at a constant:

$$P_{\max} = (S_0 - K + C) \times 100 \times N$$

That is ($71.85 - $70 + $3.10) × 100 = $495, the max profit for one contract. It is capped income: however far the stock collapses, you never earn more. About 63% of it is premium, and the rest is the fall to the strike price.

Stacked bar splitting a $495 covered put maximum profit into $310 of put premium and $185 from the stock's drop to the strike — How the example's top gain divides between put premium and the fall to the strike.

Maximum loss

Above the breakeven the result is $(S_0 + C - S_T) \times 100 \times N$, where $S_T$ is the final price. Nothing caps $S_T$, so the max loss is theoretically unlimited, and that is the central fact to weigh before entering.

Worked example: how to sell a put against shares you shorted

This worked example uses one contract on shares sold at $71.85, with 45 days to expiration.

Example problem: one contract, 100 shares

You sell 100 shares at $71.85 and collect $3.10 a share for one $70 put. What do you earn, and where does the trade turn negative? The premium received is $3.10 × 100 = $310 per contract, the net credit you bank on day one. The best case is $495 and the trade turns negative above $74.95, as computed above.

Result cards from a covered put calculator showing a $495 maximum profit, a $74.95 breakeven price and an unlimited maximum loss — What the calculator returns for the example: a capped gain, a breakeven just above the sale price, and unlimited risk.

Profit and loss at each price

At $66 the short leg earns $585 while the put gives back $90 of its premium, netting $495. At $78 the stock loses $615, and the $310 premium received softens that to a $305 shortfall. The P&L moves in lockstep below the strike, and only the stock keeps moving above it.

Table splitting covered put results into short stock profit, short put profit and net result at six stock prices from $62 to $84 — How each leg of the example trade contributes to the net result at six expiration prices.

Return on capital and annualized return

Your capital is the collateral your broker holds, not the premium. If it requires half of the $7,185 sale value, or $3,592.50, your return on capital is $495 ÷ $3,592.50, a static return of 13.78% over 45 days, or an annualized return near 111.8%. Treat that as the best case, since margin rules differ by account.

Covered put payoff diagram: profit zones at expiration

Reading the payoff diagram

The payoff chart plots the result against the stock price at expiration. The line is flat at $495 below the strike price, slopes down through zero at $74.95 and keeps falling. The dashed vertical line marks the strike price, and the shaded areas show where the P&L is positive or negative, giving you the theoretical profit at every price.

Line chart of covered put profit and loss at expiration, flat at $495 below the $70 strike and crossing zero at a $74.95 breakeven — How the example trade's result changes with the final price, with the strike and breakeven marked.

Three zones to remember

Below $70 the gain is locked at its top. Between $70 and $74.95 it shrinks by $100 for every $1 the stock price rises. Above $74.95 the trade is losing, and the underlying security has no ceiling.

Colour-coded bar splitting stock prices into a locked-profit zone below $70, a shrinking-profit zone to $74.95 and an uncapped-loss zone above it — The three price zones of the example trade, with the $71.85 sale price marked.

Selling a put against 200 shares you already shorted

The 200 shares are already short, sold at $38.62 after an earnings pop for $7,724 in proceeds. The plan is to get paid while waiting for a pullback, so the ticket shows a 38-day $37 put bidding $1.74, and the trade goes into the calculator as a $38.62 sale price, a $37 strike, a $1.74 premium and 2 contracts.

Three numbers come back. The maximum profit is ($38.62 − $37.00 + $1.74) × 100 × 2 = $672, the breakeven is $38.62 + $1.74 = $40.36, and the loss above that is unlimited. Regulation T asks for 50% of a short sale's value, or $3,862, so $672 is a 17.40% return on the capital held.

The breakeven is what decides the trade. The stock's 200-day average is $40.85, only $0.49 above $40.36, so an ordinary bounce to that average would already cost $98 at expiration. One input changes: the strike moves to $38, where the put bids $2.31.

Strike	Premium	Maximum profit	Breakeven	Against the $40.85 average
$37	$1.74	$672	$40.36	$0.49 below
$38	$2.31	$586	$40.93	$0.08 above

The $38 strike gives up $86 of maximum profit, since ($38.62 − $38.00 + $2.31) × 200 = $586, but its $40.93 breakeven clears the average. A close at $40.85 now leaves a $16 gain instead of a $98 loss, so the $38 put goes in. The buy-to-cover order is set at a $40.93 close, the exact price where this trade stops paying.

Cash-secured put calculator: the cash-backed alternative

Many traders searching for this tool actually want a cash-secured put (CSP), so it helps to separate the two. A cash-secured put is an income strategy with no short sale at all: you sell a put and keep enough cash on hand to buy 100 shares at the strike price if you are assigned. It suits someone neutral to moderately bullish, while the short-sale version suits someone bearish.

Two side-by-side cards comparing a covered put with a cash-secured put on market view, holding, maximum profit, breakeven and maximum loss — The two strategies compared on the same $71.85 stock.

Cash required for a cash-secured put

The cash required equals the strike price times 100. Sell one $68 put and the premium received is $1.42 a share, so you set aside $6,800 as cash collateral while the premium income is $142. If the put expires worthless you keep the $142 and the cash; if you are assigned instead, the collateral buys the stock.

Effective cost basis and assignment

If you are assigned, your effective cost basis is the strike price minus the premium: $68 - $1.42 = $66.58. That is also your break-even, and it sits below where the stock trades today. Many investors treat being assigned at that cost basis as the goal, and it is the first step of the wheel strategy.

Annualized return on cash-secured puts

For a cash-secured put, divide the premium by the strike price to get a 2.09% yield on the cash committed, which is also the downside buffer before the trade loses money. Scaled by 365 over 45 days, the annualized return is 16.94%, and you can compare it against other days to expiry without guessing.

Cash-secured put result	Formula	Example
Cash committed	Strike × 100	$6,800
Premium income	Premium × 100	$142
Break-even and cost basis	Strike − premium	$66.58
Premium yield	Premium ÷ strike	2.09%

Wheel strategy and the covered call calculator

The wheel strategy strings cash-secured puts and covered calls into one cycle: sell puts, take assignment, sell a call against the stock, and repeat. A cash-secured put calculator handles the first half, and our covered call calculator handles the second. The same 100-share, one-contract sizing applies to both.

Margin and assignment risk when selling puts

Early assignment and the put buyer

The put buyer can exercise and force you to buy 100 shares at the strike price. Because you are already short, those shares cancel the short sale, but you can be assigned early, before the expiration date, typically when the put is deep in the money or a dividend is close.

Margin requirements for the short leg

Shorting stock needs a margin account, and your brokerage sets separate margin requirements for the borrowed shares and the sold put. A covered put position ties up more than the premium, and covered put positions are often closed early. Those rules decide your real return, and they tighten when the underlying stock rallies or assignment looms.

Downside risk when the price rises

The capital at risk is far larger than the premium. The example loses $49 if the stock climbs 5% and $2,564 if it climbs 40%, so a rally is the danger to size for.

Bar chart of covered put losses growing from $49 when the stock rises 5% to $6,875 when it doubles — Loss on the final day for the example trade as the price climbs 5% to 100% above the sale price.

Common mistakes when selling puts against short shares

Common mistakes

Treating the premium as safety, when the result is uncapped once the price passes your sale price plus the premium.
Ignoring implied volatility, which lifts premium but also signals larger swings.
Forgetting that theta decay helps only if the price stays flat.
Skipping the commission and the borrow fee, which trim the gain.

Key concepts

The sold put is an obligation, the buyer holds the right, and a stock limit order can be a cheaper way to sell stock you already want to trade. Strike selection also matters: an out-of-the-money strike pays less but is assigned less often.

Strike choice	Premium	Assignment risk
Out-of-the-money	Lower	Lower
Near the price today	Moderate	Moderate
Above the price today	Higher	High

Applications

A trader can use this options trading setup to express a bearish view with a bounded gain, to earn income on a short already open, or to compare it with a bear put spread or a long put that costs premium instead of earning it.

Any options calculator is only as good as its inputs, so confirm the option chain quotes and open interest before you rely on a result. If you want a different shape, try other option calculators for a bull put, bear put, bull call or bear call spread, or straddles and strangles. A simple profit calculator, an options income calculator or a CSP calculator covers the cash-backed side, and a put option calculator prices the buyer's side. Check stock price history and volatility first, since volatile options can swing the premium quickly.

This page is for educational purposes only and is not investment advice. Options carry risk, the stock market is unpredictable, and a financial advisor can confirm what suits you. Please read the disclaimer, and remember that leverage, liquidity and the probability of assignment all vary by trade.

FAQs around Covered Put Calculator

1. What is a covered put and how does this Covered Put Calculator work?

A covered put pairs a short stock position with a short put option on the same stock, so you collect the put premium while expecting the price to fall or hold steady. This Covered Put Calculator takes your short sale price, put strike, premium, expiration price and lots, then shows profit or loss, break-even and a payoff chart.

2. How do you calculate covered put profit or loss?

Take the short sale price minus the stock price at expiration, add the put premium you collected, then subtract the put's intrinsic value (the strike price minus the stock price, never below zero). Multiply by 100 shares per lot and by the number of lots. With a $48 short sale, $44 put at $1.85 and a $41 stock, the covered put formula gives +$585.

3. What is the break-even price of a covered put?

The Covered Put Calculator finds the covered put break-even as the short sale price plus the premium received: $48 + $1.85 = $49.85 in the default example. Above that price the combined position loses money. Below it you make money, and the profit grows until the stock reaches the put strike.

4. What is the maximum profit on a covered put?

Max profit is capped at (short sale price - put strike + premium) x 100 shares x lots, which is $585 in the default example. You reach it when the stock finishes at or below the put strike, because the put is then in the money and its intrinsic value offsets every further dollar the short stock gains. That capped payoff is the covered put's max profit.

5. Why is the upside risk of a covered put unlimited?

The short stock loses one dollar per share for every dollar the stock rises, and a stock has no price ceiling. The premium only softens the loss slightly, and the short put expires worthless when the stock rallies, so it adds no protection. Traders often buy back the short shares if the stock climbs.

6. When should you use a covered put, and how does the put strike change the result?

A covered put strategy suits a moderately bearish view: you want the stock lower but will accept capped profit for extra premium. The put strike must be at or below the short sale price. A higher strike usually pays more premium but caps profit sooner, so test several strikes in the Covered Put Calculator.

7. How does a covered put compare with a covered call?

A covered call is long stock plus a short call, and a covered put is its bearish mirror image: short stock plus a short put. By put-call parity, short stock plus a short put behaves like a short call, which is why both the covered put and a naked short call carry unlimited upside risk.

8. Does the Covered Put Calculator include borrow fees, commissions or early assignment?

No. It models the payoff at expiration from the prices you enter. Stock borrow fees, dividends you owe on the short shares, commissions, taxes, margin requirements and early assignment of the put are not included, so check the bid-ask spread and your broker's rules before trading.

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Covered Put Calculator vs. Cash-Secured Put Calculator

Covered put profit/loss at expiration by stock price ($ per position)

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