This position is the inverse of the Covered Call.  However, the risk in the covered call is limited to zero whereas the risk in the covered put is theoretically unlimited.  The trade is comprised of two legs: 1) Short Stock and 2) a Short Put.  The trade optimizes a bearish trend but has a limited reward.  As with the Covered Call, the short option provides a credit that helps to hedge the position to a limited degree.  If one wishes to limit the upside risk in the position, a long call could be added which would morph the position into a Reverse Collar.

Study the risk graph and you should gain an understanding of the risk and reward of the trade.  Best, Robin

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