COVERED PUT Meaning and
Definition
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A covered put is a financial strategy where an investor sells a put option on a security that they already own. In this strategy, the investor holds a long position in the underlying asset and simultaneously sells a put option against it. The purpose of this strategy is to generate income from the premium received from selling the put option, while also providing downside protection.
By owning the underlying security, the investor "covers" the put option position, meaning they have the ability to fulfill their obligation if the option is exercised. If the price of the underlying security falls below the strike price of the put option, the investor would have to purchase the security at the higher market price and then sell it at the lower strike price to fulfill their obligation. The premium received from selling the put option helps to offset any potential losses from this obligation.
A covered put strategy is often employed by investors who believe the price of the underlying security will remain relatively stable or increase slightly. By selling the put option, they can generate income and potentially profit if the price of the security rises above the strike price, allowing them to keep the premium received without having to fulfill their obligation. If the price of the security decreases, the premium received helps to cushion the losses.
Common Misspellings for COVERED PUT
- xovered put
- vovered put
- fovered put
- dovered put
- civered put
- ckvered put
- clvered put
- cpvered put
- c0vered put
- c9vered put
- cocered put
- cobered put
- cogered put
- cofered put
- covwred put
- covsred put
- covdred put
- covrred put
- cov4red put
- cov3red put
Etymology of COVERED PUT
The etymology of the word "covered put" can be traced back to the origins of the individual words within it.
1. Covered: The word "covered" derives from the Old French word "covrir" meaning "to cover". It entered the English language in the 14th century, ultimately from the Latin word "cooperire", having the same meaning.
2. Put: In finance, a "put" is a type of financial derivative contract. The term "put" developed from the Middle English word "putten", meaning "to place, stretch out". It has roots in Old English and Old Norse, coming into English via Germanic languages.
When combined, the phrase "covered put" refers to a specific options trading strategy where an investor sells (writes) a put option on a security they already own (thus covered). The etymology of the individual words contributes to the meaning of this financial term.
