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Premium received vs max profit: the same number, until it isn't

When you sell a cash-secured put, the premium you receive is your max profit. When you sell a covered call, max profit also counts the shares, and if the strike is below what you paid, the best possible outcome can still lose money.

Comparison · 6-minute read · Updated 2026-10-26

The short answer

Premium received is the cash paid to you when you sell an option. It lands in your account right away.

Max profit is the most the whole position can make by expiry.

• On a cash-secured put, they're the same. The best case is the put expiring, and you keep the premium. See Max gain.
• On a covered call, max profit is the premium plus any gain on the shares up to the strike. If the strike is below what you paid for the shares, that "gain" is a loss, and max profit can be negative.

The premium is never your profit until the trade is over. It's cash you hold against a promise.

Side by side

A worked example (an illustration, not a trade idea)

You bought 100 shares of a made-up stock, XYZ, at $60. It has fallen to $48. You want to do something, so you sell a one-month $50 call for $1.50. Your account shows +$150.

It feels like a win. Your app may even list "max profit: $150" on the option alone. But the option isn't the whole position. Here's the whole position at expiry.

Every row loses. The best this position can do is −$850.

That's the trap in "premium received." You collected $150 and booked it in your head as profit. But by selling a call below your cost, you agreed to sell shares you paid $6,000 for at $5,000. If XYZ bounces back to $70, you don't get the bounce. You lock in the loss.

The plain short put, honestly counted

Even when premium and max profit match, they aren't the same as your result.

You sell a $45 put for $1.00 and receive $100. Max profit: $100, but only if:

• the put expires out of the money,
• you hold it to the end,
• you ignore commissions and the bid-ask spread.

If you buy it back early at $0.30, you keep $70. If XYZ falls to $38 and you're assigned, your result is −$600, and the $100 is still sitting in your account the whole time. Received cash and earned profit are different things until the trade closes.

How to keep the two straight

1. Work out max profit on the whole position, not the option alone: shares + option, at the strike.
2. Write your cost basis next to every covered call. If the strike is below it, the call locks in a loss if assigned. See cost basis vs break-even.
3. Don't count premium as earned until the option is closed or expired. Many sellers track "open premium" and "realised" separately.
4. Ask what you're agreeing to, not what you're being paid. The premium is the price of the promise.

In the wheel strategy, the strike-below-cost call is one of the most common ways a wheel goes wrong. It feels like progress. It's often a quiet sale at a loss.

Our covered call guide shows the full outcome table for a call above your cost.

In Canada, a covered call in a TFSA or RRSP works the same way; covered calls are widely allowed there. Options permissions differ by broker.

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