aggresive covered call trading

MTE · Jan 13, 2012

Quote from TraderBoy23:

I may be wrong, and it's not the same strategy that you are implementing, BUT, you could buy the security at, lets say 76, sell the call at 77 and purchase a put at 75.

The premium from the call would be lost in the purchase for the put, (and then some possibly) but if the call and put are close to equal spacing from the purchase price of the security they are usually pretty close in cost.

hypothetically, lets say the premium from the call directly offset the cost of the put. If the stock falls from 76 down to 75, your put is essentially your stop. If the stock rose to 77, you would make the difference between purchase price and the higher call, in this case $1. This way you have profit potential to the upside, and have a limited downside of risk. Granted, this isn't the best way to make money trading options but is something that is close to original plan. it just uses a put instead of a stop order, essentially.

Or you can just buy a 75 call and sell a 77 call, and achieve exactly the same thing.

On a side note, you can also sell a 77 put and buy a 75 put to, once again, achieve exactly the same thing.

osho67 · Jan 13, 2012

Quote from MTE:

Or you can just buy a 75 call and sell a 77 call, and achieve exactly the same thing.

On a side note, you can also sell a 77 put and buy a 75 put to, once again, achieve exactly the same thing.

Thanks. But will my premium income be the same?

TraderBoy23 · Jan 13, 2012

Quote from falcon:

I wasn't having a go just asking if you are keen to share some other ways or better ways to trade options.

Oh gotcha. Sometimes online it's hard to tell ones motive haha and on ET of course. But I mean I personally don't use covered calls a ton. I do on occasion but everyone prefers different strategies which work for them. I prefer vertical spreads though, but that's just me different things work for different people

TraderBoy23 · Jan 13, 2012

Quote from MTE:

Or you can just buy a 75 call and sell a 77 call, and achieve exactly the same thing.

On a side note, you can also sell a 77 put and buy a 75 put to, once again, achieve exactly the same thing.

Yes and no. I mean I agree like I said previously i prefer to do verticals but the OP seems to be comfortable with the covered call play. But yes though you'd have to pay the premium instead of receive you risk much less than you would by doing a covered call strategy.

In my first response I was only trying to stay as close to OP's strategy as I could.

MTE · Jan 13, 2012

Quote from TraderBoy23:

Yes and no. I mean I agree like I said previously i prefer to do verticals but the OP seems to be comfortable with the covered call play. But yes though you'd have to pay the premium instead of receive you risk much less than you would by doing a covered call strategy.

In my first response I was only trying to stay as close to OP's strategy as I could.

The risk is exactly the same in all 3 combinations (call vertical, put vertical or stock collar).

Also, whether you pay or receive premium (as is the case in a short put vertical) is completely irrelevant since you would also have a margin requirement, which would reduce your buying power as well.

MTE · Jan 13, 2012

Quote from osho67:

Thanks. But will my premium income be the same?

All 3 positions have exactly the same risk/reward ratio. The reason being that there are synthetic equivalents of each other.

That is, buying the stock and selling 77 call is synthetically equivalent to selling 77 put. Likewise, buying the stock and 75 put is synthetically equivalent to buying 75 call...