What is a 'Covered put':---
A covered put is an
options strategy in which investor holds a short position in underlying asset
and sells put options on that same asset to increase income from the asset.
This strategy useful when short term market view is neutral and holding asset
short.
Price taken At 13 feb, 2019 around 1:20 pm.
Here,
covered put stands that person short nifty 1 lot @ 10,865.20 with option strike
of 10800 put @ 94 rs.
Pay
off of this strategy is market should move in narrow range.
If
expiry is settle at 11000 then,
nifty
1 lot sale= 10865.20- 11000 = (134.8 rs) loss
while
put will expire out of money option so net profit will be 94*75 = 7,050 rs.
Net
loss at 11000 expiry will be Rs. 94-134.8 = 40.8*75(lot size)= 3,060 rs
Break-even
point in this strategy is nifty expiry on or below 10959.2, one can earn
respective profit.
Downsize
there will not be any loss due to selling of nifty.
IN
NUTSHELL, It is a best strategy where market mood is not good rather market
trend is negative to range bound. By
selling 10800 put it will safeguard 94 rs upside.
one
can use strategy where market already gone up from short position like nifty
touch at 10900 that time one can sell put option any safeguard some amount.
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