Covered Put

A Covered Put strategy, also known as a Synthetic Short Call, is a bearish strategy constructed from a short put (red) and a short position in the underlying stock (purple). Covered Puts can be used to target a buy price on the underlying. The writer would set the option’s strike at the target price. The premium received effectively reduces the current stock price. Put writers like to issue options when they believe a rapidly falling (high volatility) stock has bottomed out.

As with any short option position, the seller obviously hopes that time decay will render the short put worthless at expiry, thereby turning the entire premium received into profit.