InvestorQ : Like covered calls can I also do covered put strategies and how does it work?
Moii Chavate made post

Like covered calls can I also do covered put strategies and how does it work?

Answer
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Sam Eswaran answered.
2 years ago


What do you do if you are moderately bearish on a stock? In the Cummins case you do not expect Cummins to go down to Rs.900 but only up to 930. In this case you sell Cummins Futures at Rs.960 and then sell the Cummins 930 put option at Rs.10. This effectively improves your average cost of shorting Cummins by Rs.10 and your new effective purchase price is Rs.970. On the downside you earn maximum profit on this strategy at Rs.930. Below that level whatever you gain on the futures is lost on the short put option. But it needs to be remembered that this strategy has open risk on the upside above Rs.970. That is a risk you need to be conscious of.