Strategies · Library · Options
§2.3Carry
Covered put
Short the shares and sell a put below the price, collecting the premium. Earns income on a bearish-to-flat view; the gain on a fall is capped at the put strike.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Neutral to mildly bearish; expects the stock to drift lower or stall, not collapse.
- Entry and exit
- Short shares and sell one out-of-the-money put per 100 shares. At expiry let the put lapse and sell another, or cover if the stock rallies hard. Close if the loss limit is hit.
- Sizing
- 1:1 (one short put per 100 shares shorted)
How it fails
- Loss is unlimited if the stock keeps rising; premium only cushions slightly
- Profit from the fall is capped at the put strike
- Borrow cost and the chance of a short squeeze
- Behaves like a sold call
Data it needs
- options chain with strikes and premiums
- underlying daily price
- dividends and borrow cost
ARCANE has the underlying daily close but no options chains, strikes or implied volatilities
How ARCANE uses it
Matches a Call that a stock or index falls modestly or stays flat, for example "oil ends the quarter lower but above a floor". Paper only.
Needs a short position and a sold put; the builder is long-only.
Filed under the carry card
Own what pays more than it costs to finance (the return if prices stand still) and sell what pays less, across currencies, bonds, commodities and stock indexes.
A paper plan from this card holds 21 to 252 days, stops at 2× the expected move and uses at most 75% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.3, p. 19 of the SSRN version. Described in our words. Carry is ARCANE’s filing, not the book’s.