Covered Calls vs. Naked Puts

[Kosharie]

Quote from Chelsea_FC:

Other than the interest rate issue (which is not much of a real consideration) a covered call is exactly the same as a naked put. It is absolutely not less risky.

Except you own the stock and assuming it's dropped and your not called out you can keep selling calls on it month after month so even though your underwater on the price of the stock it is creating cashflow.

 

[spindr0]

Quote from Kosharie:

Please explain how selling any naked option has limited risk?
Limited to the underlying going to zero? Thats unlimited enough for me.

I sold a call on rmbs once for 11% and a week later sat and watched the stock drop several dollars in minutes based on BS news. After a few days it came up to where I could get out close to even. If I had sold naked puts I would had to cover at a huge loss or possibly be excercised at an even greater loss.

The naked put will always have less risk than buying the stock whether it goes to zero, infinity or Hoboken.

 

[spindr0]

Quote from Kosharie:

Except you own the stock and assuming it's dropped and your not called out you can keep selling calls on it month after month so even though your underwater on the price of the stock it is creating cashflow.

Rent is great when the building is burning down.

:eek:

 

[Chelsea_FC]

Quote from Kosharie:

Except you own the stock and assuming it's dropped and your not called out you can keep selling calls on it month after month so even though your underwater on the price of the stock it is creating cashflow.

That makes no sense. That is exactly the same thing as then selling puts the next month.

 

[atticus]

Quote from Chelsea_FC:

Other than the interest rate issue (which is not much of a real consideration) a covered call is exactly the same as a naked put. It is absolutely not less risky.

The risk can be greater than vega if you're trading positions expiring years-out. Buffett's massive put sale on the SPX and other indices carried more risk to rho than vega (while ITM) if vol had traded under historical-norms, pre-2007, depending on the lookback.

The rho can represent a massive swing in PNL tied to rates. Buffett's position moved >$600MM on rates alone, due to the change in the implied forward. 10bp in dividends results in almost a $20MM variance.

 

[Mike Okistini]

Quote from failed_trad3r:

I am new to options but an option strategy combined with stocks is best i think when writing options.

for example if you want to own stocks, sell puts, it gives other people the right to sell at the strike to you. So if you want to buy a stock at a certain price (strike) naked put is great way to lower the cost, or make money.

or if you want to sell a stock, but dont think it will appreciate much, but dont want to sell for a loss, you can sell a covered call. This works out even better if you get regular dividends with the stock.

If you write options naked without the intention to ever own stock I think it's a gamblers game.

This convaluted posting might explain your handle.

 

[atticus]

Quote from Mike Okistini:

This convoluted posting might explain your handle.

Watch out for Mike, he's a badass.

 

[Mike Okistini]

Quote from Kosharie:

To me the big difference between trading covered calls and selling a put is risk potential.
Covered calls are considered one of the safest ways to interact with the market.
Selling a put has unlimited risk potential.

I took Joseph Hoopers class several years ago and use the techniques when things line up.
I use several trading strategies in stocks and futures depending on the current situation. Two things I don't do are purposefully day trade or try to get rich overnight.

I think either you were asleep during the class or Hooper should be banned from teaching options. It is funny how you view covered calls as safe but naked puts have unlimited risk potential. Why don't you think for a minute what makes covered calls so safe and what makes naked puts have unlimited risk potential. You might learn something....

 

[Mike Okistini]

Quote from Chelsea_FC:

That makes no sense. That is exactly the same thing as then selling puts the next month.

Not only are you right but you have good taste in football (UK).

 

[Chelsea_FC]

Quote from Mike Okistini:

Not only are you right but you have good taste in football (UK).

Go Blues!