yes. CC is the synthetic equivalent to a short naked put. When people talk about drawing an "income" by selling the call, and "protecting it" by owning the stock, is extremely misleading and irresponsible.
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Covered call: How do you pick best expiration month?
- Thread starter a529612
- Start date
IMO, you should sell the second month out, and should choose stocks that "can't go any lower". At that point, to decide if to do credit spreads or covered calls, and that will depend on how much time premium you must pay for the long, and also on how low priced the stock is.Quote from a529612:
Should you always sell 2-3 months out to get more time value premium or sell the nearest month expiration and keep renewing it every month if it expires worthless?
After a two month timeframe, I believe it's too hard to sense what the stock will do next, and less than two months does not give you a margin for error.
incorrect. cc does not generate income if the stock goes down by more than the premium rec'd for the sale of the call. in addition, the downside is unlimited in scope. plus, if the stock makes a monster move north, your stock can only participate up to the strike you sold(opportunity cost). It's a lousy r/r imo.
Same with writing puts on a bullish underlying. There are a million other bullish strats, that blow the doors off put sales from a r/r standpoint imo.
I guess my point is most don't fully understand cc's.
which book would u rather buy....
"Conservative income generating covered call selling strategies for dummies" or...
"High risk, low reward naked put selling for dummies"
Same with writing puts on a bullish underlying. There are a million other bullish strats, that blow the doors off put sales from a r/r standpoint imo.
I guess my point is most don't fully understand cc's.
which book would u rather buy....
"Conservative income generating covered call selling strategies for dummies" or...
"High risk, low reward naked put selling for dummies"
You are yes saying good stuff. I did qualify "for a stock that can't go lower", and for a low priced stock, as the difference between a bull credit spread and a covered call are about nill for low priced stocks.
If I may add, the cc I would sell would ideally be out-of-the-money, paying a nice premium, and leaving some good upside first before having to give away the rest. As a final backup, (and specifically after already haven chosen your best low priced stocks) averaging down to lower the break even--only to the extent you're convinced it's an even better buy.
If I may add, the cc I would sell would ideally be out-of-the-money, paying a nice premium, and leaving some good upside first before having to give away the rest. As a final backup, (and specifically after already haven chosen your best low priced stocks) averaging down to lower the break even--only to the extent you're convinced it's an even better buy.
"MajorUrsa
"CC's are equivalent to selling naked puts".
Could you please explain this statement? I'm just new to options stuff. CC - when executed you have no stocks, naked put - when executed, you have stocks. Am I correct? So are they equivalent?
Thanks"
gkishot
"Why is that? CC generate income when the stock goes down.
Uncovered puts generate income when the stock goes up."
i dont know why this concept is so hard to understand.
to understand the concept better try this hypothectical experiment. graph what happens if you buy a $100 stock and sell an at the money covered call for $5 or if you sell an at the money naked put on a $100 stock for $5 and the stock goes to 0. in both cases you lose $95.
now graph what happens if you buy a $100 stock and sell an at the money covered call for $5 or if you sell an at the money naked put on a $100 stock for $5 and the stock goes to $200. in both cases your profit is $5.
in both cases your risk reward is virtually the same.
"CC's are equivalent to selling naked puts".
Could you please explain this statement? I'm just new to options stuff. CC - when executed you have no stocks, naked put - when executed, you have stocks. Am I correct? So are they equivalent?
Thanks"
gkishot
"Why is that? CC generate income when the stock goes down.
Uncovered puts generate income when the stock goes up."
i dont know why this concept is so hard to understand.
to understand the concept better try this hypothectical experiment. graph what happens if you buy a $100 stock and sell an at the money covered call for $5 or if you sell an at the money naked put on a $100 stock for $5 and the stock goes to 0. in both cases you lose $95.
now graph what happens if you buy a $100 stock and sell an at the money covered call for $5 or if you sell an at the money naked put on a $100 stock for $5 and the stock goes to $200. in both cases your profit is $5.
in both cases your risk reward is virtually the same.
Damn, sometimes you wonder why don't you see simple things.. I was just thinking the wrong way. Thanks Vhehn.
But another question arises: do puts and calls have the same price? are these strategies still equal, if puts and calls have different prices?
But another question arises: do puts and calls have the same price? are these strategies still equal, if puts and calls have different prices?
Quote from tradebanzai:
Damn, sometimes you wonder why don't you see simple things.. I was just thinking the wrong way. Thanks Vhehn.
But another question arises: do puts and calls have the same price? are these strategies still equal, if puts and calls have different prices?
google Put-Call Parity and do some research.
Yes, the risk/reward ratio is virtually the same. But in terms of generating the income as was discussed in the previous post you have to be bullish on stock to collect income for naked puts & you have to be bearish on stock to collect income for covered calls.
So strategically they are different.
So strategically they are different.
Quote from gkishot:
Yes, the risk/reward ratio is virtually the same. But in terms of generating the income as was discussed in the previous post you have to be bullish on stock to collect income for naked puts & you have to be bearish on stock to collect income for covered calls.
So strategically they are different.
a perfect example. as many times as it is explained some just dont get it.