What is the breakeven point for a short stock-short put strategy?

In a short stock-short put strategy, the breakeven point is calculated by adding the premium received from selling the put option to the price at which the stock was shorted.

When an investor shorts a stock, they sell it with the expectation of buying it back at a lower price. To enhance their position, they can also sell a put option, receiving a premium. The critical concept here is that the premium acts as a cushion against potential losses. If the stock price rises above the short sale price, the investor incurs a loss on the short position. However, receiving the premium from the put option offsets some of this loss.

Thus, to find the breakeven point, you take the short sale price of the stock and add the premium from the sold put option. If the market price of the underlying stock is at this breakeven point, the total impact of the short position and the premium received results in neither a gain nor a loss when the position is closed.

Understanding this breakeven calculation helps highlight how options strategies can be used to manage risk and potential returns effectively in various market conditions.