Buying Covered Calls

[El OchoCinco]

It does create a credit spread with a bearish sentiment. If the stock price goes up against the short stock, the long call will rise offsetting the loss. You're right, it's simpler to buy otm put. However, payment is required.

But don't you have to pay for the long call?? Payment is required there too...

 

[viruscore1]

But don't you have to pay for the long call?? Payment is required there too...

the proceeds from the short stock pays for long call

 

[newwurldmn]

You owe the dividend payment it to the person you borrowed the shares from. Not fun! Rather than short stock, buying ITM put has similar effect.

What do you mean?

You pay it as cash in leui, and the broker handles it.

 

[newwurldmn]

Today I realized one can actually buy covered calls, not just sell them. Pretty interesting concept, and I wonder what would be the advantage of doing so. Shorting the stock and buying the calls. It should be the equivalent of buying puts, maybe that is why nobody is doing it?

Or is there something else what I am missing?

Two transactions instead of one.

 

[viruscore1]

What do you mean?
You pay it as cash in leui, and the broker handles it.

The easy explanation is "try it". Short a stock 1 day before ex-dividend date and hold it, see what happens to the short stock price and your equity.
https://money.stackexchange.com/que...stock-before-the-ex-div-date-to-make-a-profit

 

[El OchoCinco]

the proceeds from the short stock pays for long call

You don't get the proceeds from the short sale of the stock it is separated for margin purposes.