CC vs Short Put (dividend paying stock)

Quote from panzerman:

Perhaps, but my point is that while a CC and a short put are theoretically (mathematically) the same, market conditions can skew that relationship.
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That is probably correct, but sadly we can not predict which side the skew is towards. Selling the stock in the CC is probably easier in a falling market that shorting that stock to hedge the short put, if only for uptick rules and the like.

I both cases selling calls might be the best option.

Ursa..
 
If you're trading in 5 or 10 lots, liquidity in the option is almost never a problem. However, the amount of money you may have to give up in terms of the spread can be huge (especially in percentage terms.) That's why I say that the naked put can lose money faster than a CC. Obviously, if you leg out of the CC, then yes you run the risk of a market reversal.

For a market maker who can react faster and has less overhead trading expenses, the difference between the two positions is minimal and more closely approximates the theoretical.
 
Panzer, not true at all.

By your logic:

CC, sell the stock, then close out the call later, so you're turning the covered call into a naked call

Naked put, short the stock, then close it out later, you're turning a naked put into a naked-call-equivalent position.

So no, naked puts don't lose money faster then a covered call.

The 2 positions are identical for the most part.
 
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