Covered Calls vs. Naked Puts
- Thread starter aradiel
- Start date
Synthetically they are the same. However, a short put has the advantage of lower transaction costs.
Generally speaking, if you already hold the stock for other purposes then a covered call is the way to go. On the other hand, if you don't have the stock then you are better off just writing a put.
On a side note, this topic has been discussed here multiple times so you may wanna use the search function to find previous discussion on this.
Generally speaking, if you already hold the stock for other purposes then a covered call is the way to go. On the other hand, if you don't have the stock then you are better off just writing a put.
On a side note, this topic has been discussed here multiple times so you may wanna use the search function to find previous discussion on this.
I have thought about this. They would be the same depending on the strikes of the put and call. Suppose I am trading the ES and it is at 1200. I want to sell a naked put. I go out 5% and sell the 1140 Put and get a premium. Now, buy the ES at 1200 and sell the 1140 call. Now, to me, these trades look the same. Both have fixed profit if the underlying stays above 1140. Here's the difference. You will find that the time value of the short put is higher than the time value of the short call. So, technically speaking, the short put is the better deal. Now, I look at the margin required for both, and lo and behold, they are about the same. So, it appears that the short put is still the better deal. Here is another point. Suppose, instead of the 1140 strike for the short call, we go to 1100--further ITM. Well, the time value available is the same as the 1140 call (and margin is the same as above). So, we get back to the old adage--more risk, more reward.
