Brief Question about Covered Calls/Puts

[DallasCowboysFan]

Do most of the traders here use covered calls ?
Or just buy a call/put contract, but nothing else to protect yourself ?

Are there certain situations where a naked call/put is more acceptable than using one that is covered ?

I wonder what percentage of contracts are covered and what percentage is not ?
I have never seen any information related to that.

 

[blueplayer]

Do most of the traders here use covered calls ?
Or just buy a call/put contract, but nothing else to protect yourself ?

Are there certain situations where a naked call/put is more acceptable than using one that is covered ?

I wonder what percentage of contracts are covered and what percentage is not ?
I have never seen any information related to that.

There are many ways to make (and lose) money with options. They range from very conservative (like covered calls), to outright crazy (naked calls in equities, naked puts in index).

I prefer the ones in between. The fact you are asking the question means that you are just starting down this road of option trading. The best advice that I can give is to read a lot and if playing with real money, use small amounts (cheap tuition) while you get comfortable with this.

 

[blueplayer]

Do most of the traders here use covered calls ?
Or just buy a call/put contract, but nothing else to protect yourself ?

Are there certain situations where a naked call/put is more acceptable than using one that is covered ?

I wonder what percentage of contracts are covered and what percentage is not ?
I have never seen any information related to that.

I forgot to answer the question. A covered call is equivalent to a naked short put and it is a very conservative strategy in equities. In general being short gamma without any protection ("naked", undhedged) is not a very good idea for most (they are those brave out there, but there is always Victor Niederhoffer to remind us why that is not such a good idea).

 

[DallasCowboysFan]

There are many ways to make (and lose) money with options. They range from very conservative (like covered calls), to outright crazy (naked calls in equities, naked puts in index).

I prefer the ones in between. The fact you are asking the question means that you are just starting down this road of option trading. The best advice that I can give is to read a lot and if playing with real money, use small amounts (cheap tuition) while you get comfortable with this.

Yeah, I am a rookie here. I have had an IRA for many years and traded individual stocks but I want to use more leverage with options.

I know using covered calls is the safest thing to do, but I have never seen any stats on those that use them that don't.

I have been reading a lot about this in the last 6 months or so. But every time I learn something new, I have 3 more questions. Which lead to new questions.

I have a paper trading account with TD Ameritrade but I have not used it yet.

I want to be Jesse Livermore without the bankruptcies, divorces and suicide.....lol

 

[blueplayer]

Yeah, I am a rookie here. I have had an IRA for many years and traded individual stocks but I want to use more leverage with options.

I know using covered calls is the safest thing to do, but I have never seen any stats on those that use them that don't.

I have been reading a lot about this in the last 6 months or so. But every time I learn something new, I have 3 more questions. Which lead to new questions.

I have a paper trading account with TD Ameritrade but I have not used it yet.

I want to be Jesse Livermore without the bankruptcies, divorces and suicide.....lol

Who doesn't ?

I have been collecting all my experiences on option trading in a little web book. If you want you can read over the few sections that I have actually completed (I never get the time to write sigh) it is written with a different approach to the normal option books that out there. I also made it available as a web page so is there for anyone that wants to read it.

You can start here:

http://www.anixcorp.com/the-adventurous-gamma-trader

I don't have a company called anixcorp or anything like that, it was just an old domain that I had lying around so I used to host the book. I hope you enjoy it.

 

[lawrence-lugar]

Do most of the traders here use covered calls ?
Or just buy a call/put contract, but nothing else to protect yourself ?

There are many ways to make (and lose) money with options. They range from very conservative (like covered calls), to outright crazy (naked calls in equities, naked puts in index).

It's all about that Risk vs Reward spectrum.
There really is no right or wrong option...you are paid for the risks you take.

It's not That risky if you more or less know what you're doing and are skilled...as opposed to someone who is just gambling blindly and hoping for the best in the end.

 

[MagicMike]

I'd say that starting with covered calls is a great way to begin. Maybe collars, if that seems more appropriate. Once you get a good handle on the Greeks (which I do not have), things get easier (or so they say).

 

[ironchef]

It's all about that Risk vs Reward spectrum.
It's not That risky if you more or less know what you're doing and are skilled...

How to be skilled at that and what educations/training do I need? May I ask?

 

[lawrence-lugar]

How to be skilled at that and what educations/training do I need? May I ask?

The short answer is time and experience and wisdom -- from just observing the markets for a while.
Doesn't matter if you're a day trader or a longer term investor...it's still generally the same principles.

No formal "educations/training" is needed to be a great trader.
This is not an overnight success kind of thing, it will take a while -- and the majority just flat out fail.

 

[surfer25]

There is some misinformation in this thread. While it is true that covered calls are essentially naked puts, it is not a conservative strategy. In fact, just the opposite. And selling naked puts is a better choice in most situations but not something you should be doing unless you have a lot of experience.

Start out with the most basic options strategy... buying calls and puts. And, quite frankly, if you are able to determine direction, those are the only options plays you will ever need to use.