If your covered put ends up assigned, buy back the shares right away at the current market price. That closes your short position and locks in your max loss—(strike minus market) times 100, minus whatever premium you collected.
What’s Happening
A covered put is a neutral-to-bearish play. You short the stock, then sell a put against it. The idea? Pocket the premium while keeping the upside from the short sale. If the stock stays above the strike, the put expires worthless and you keep the premium (minus any borrow cost). If the stock drops below the strike, you might get assigned the shares at the strike price, which can cap your loss to the difference between strike and market plus the premium you received.
(By the way, most retail brokers now require a margin account for uncovered short stock positions. And options clear under OCC rules, which means automatic exercise at expiration if the put is in-the-money by even a penny.)
How to Do It
- Verify Account Type
- Log in, go to Settings → Account → Account Type. Make sure “Margin” is enabled—cash accounts can’t short stock.
- Fund the margin account with at least the Reg T requirement (usually 150% of the short stock value) plus any extra house requirements.
- Find the Stock and Put
- In your trading platform (like ThinkorSwim 1.3.2026 build or Fidelity Active Trader Pro 12.5.2026), pull up the ticker → short sell the stock for the number of shares you want (usually 100 per put).
- Open the Option Chain → pick the same expiration and a strike at or just below the current price (a slight bearish tilt).
- Sell the Put
- Set a limit order: Sell to Open → Put → Quantity 1 → Strike 45 → Expiration Friday 4:00 p.m. ET → Limit price at least $0.50.
- Double-check that both the short stock and short put show up in the “Positions” tab; note the net credit you received.
- Watch for Assignment
- Turn on SMS or email alerts under Alerts → Options Assignment.
- If you get assigned, the platform will debit your account 100 shares at the strike price. You’ll need to cover the short at market.
- Close the Trade
- If the stock climbs above the strike: buy to cover the short and let the put expire worthless.
- If the stock lingers near the strike: buy to cover the short and buy-to-close the put to grab any leftover extrinsic value.
- If you’re assigned: buy the shares at the current market price to close the short. Your P&L = (strike − market) × 100 − premium.
If It Goes Wrong
- Adjust the Strike
If volatility spikes and the put premium shrinks, roll the put to a lower strike or a later expiration to collect more credit. In ThinkorSwim: right-click the position → Trade → Roll.
- Switch to Cash-Secured Put
If borrow costs are too steep, try a cash-secured put instead. Deposit cash equal to (strike × 100) instead of shorting stock. You cap your risk at the cash deposit, but you lose the upside from the short sale.
- Unwind Early
If the stock gaps down and assignment risk jumps, close the short first. Then decide whether to hold or close the put. This splits the two legs and keeps you from getting forced into assignment.
How to Avoid Problems
- Size the Position
Risk per trade shouldn’t top 2% of your account equity. Say you’ve got a $50,000 account—max $1,000 risk. Your max loss = (strike − 0) × 100 − premium, which is roughly strike × 100. So pick strikes at least $5–$10 below the current price for a little breathing room.
- Check Borrow Availability
Before you short, run a locate in the platform’s “Short Locate” window. If the stock shows up on the SEC threshold list, steer clear—or use a cash-secured put instead.
- Set Auto-Close Triggers
In the platform’s “Contingent Orders,” attach a “Buy to Cover” order at a set loss level (like $0.75 per share below strike). That keeps you from making emotional calls at expiration.
- Track Implied Volatility
Use the platform’s volatility chart under “IV Rank” to avoid selling puts when IV is already high. High IV tends to drop as earnings approach, which eats into your premium.
