Can you have a cash secured put AND a covered call on the same stock at the same time?

[IronFist]

TOS shows bewildering numbers when I model this.

Say you cash secured put and get the stock. Next options period, you want to a) sell another cash secured put and b) sell a covered call on the shares you already own. So this is like a cash straddle. Is this allowable? So if price goes down, you get more shares, and if price goes up, you sell your current shares.

 

[ayande]

A cash secured put is equivalent in risk/reward to a covered call, so by having both you just have double of the same risk exposure. Depending on the put/call skew, however, one position may be slightly more lucrative than the other. Also, with a covered call you can move the equity break-even price away from the call strike in a way that you cannot with a cash secured put. But if all things else are equal, they should be the same position. See https://www.investopedia.com/articles/optioninvestor/09/equivalent-positions.asp

 

[GaryBtrader]

Since you are long stock and have a naked put you effectively have double the exposure. So yes you are going to require about double the buying power effect to hold this position. The short call doesn't really affect this other than you're getting a little bit of income that increases your account value.

 

[IronFist]

You have a stock at $2.35 which you got from a $2.50 put that was assigned.
Next period, you sell another $2.50 put for $0.20 AND you sell a $3.00 call for $0.10.

Now if price closes under $2.50 you buy 100 more shares. And if price closes above $3.00 you sell your shares. If price closes between $2.50 and $3.00 you keep both premiums, your 100 shares, and get no additional shares. Is this correct? And nothing peculiar happens even if you have a short put a short call AND the shares?

What if same scenario EXCEPT you sell a $2.50 put AND a $2.00 call. Now if price closes under $2.50 you get 100 more shares but if price closes over $2.00 you sell your shares, so if price is like $2.25 you sell the shares you got put?

 

[JSOP]

TOS shows bewildering numbers when I model this.

Say you cash secured put and get the stock. Next options period, you want to a) sell another cash secured put and b) sell a covered call on the shares you already own. So this is like a cash straddle. Is this allowable? So if price goes down, you get more shares, and if price goes up, you sell your current shares.

Yeah of course it's allowed as long as you have enough cash to buy the shares should your puts go ITM. The call is already covered by the shares you own so there is no problems there. It's called the "wheel" strategy apparently.

 

[JSOP]

And nothing peculiar happens even if you have a short put a short call AND the shares?

You incur double the loss if the price drops by a huge amount to say $1.10. The existing shares that you acquired at $2.50 previously now have lost double the value AND you get assigned on your $2.50 strike puts again and you get another batch of 100 shares which have again lost double the value as soon as you bought them so now you've just incurred 400% losses not nearly compensated by the premiums that you have collected. This is the "peculiar" thing that can happen when you short a put, short a call and the shares.

 

[IronFist]

Wait, I misstated that. I mean you short a put, you short a call, and you hold the shares. Not short the shares.