Covered Calls vs. Naked Puts
- Thread starter aradiel
- Start date
Ok... well yes very true... but things like :
+Underlying -C = -P
is just a fact. It's synthetically the same, and if they are not in lock-step there is an arb possibility. So yes the market decides the price, but in part due to certain relationships.
+Underlying -C = -P
is just a fact. It's synthetically the same, and if they are not in lock-step there is an arb possibility. So yes the market decides the price, but in part due to certain relationships.
Covered Call or Naked Put?
I think today answers that question pretty quickly.
$COSTAverageMAN
I think today answers that question pretty quickly.
$COSTAverageMAN
... Unless the verb-age changed in the last few years.
A Covered Call strategy is where you own the underlying and sold upside calls on the position.
Example: 1000 shares of X at 50, sold the May 60's and collect the premium.
X goes up you make money till 60 strike then you give up gains past that point. If May expires worthless you keep premium
X goes down you keep premium and are still long
A Naked Put is outright gambling. You are selling puts on X and you do not own X. You better pray that the strike you sold X for is not breached to the down side at expiration.
Maybe Naked puts means something else to some, but one (Covered Call)is a conservative way to collect a dividend you create by offering upside potential that won't cost you anything more than potential gains you could of made.
The other is a way to collect premium at a huge RISK (NAKED PUT)
Naked put could mean you are owning puts on the underlying and do not hold the underlying in which you are betting that the price will drop past strike price.
Quite frankly I'm not sure why I chimed in on this discussion. They are two completely different strategies.
$COSTAverageMAN
A Covered Call strategy is where you own the underlying and sold upside calls on the position.
Example: 1000 shares of X at 50, sold the May 60's and collect the premium.
X goes up you make money till 60 strike then you give up gains past that point. If May expires worthless you keep premium
X goes down you keep premium and are still long
A Naked Put is outright gambling. You are selling puts on X and you do not own X. You better pray that the strike you sold X for is not breached to the down side at expiration.
Maybe Naked puts means something else to some, but one (Covered Call)is a conservative way to collect a dividend you create by offering upside potential that won't cost you anything more than potential gains you could of made.
The other is a way to collect premium at a huge RISK (NAKED PUT)
Naked put could mean you are owning puts on the underlying and do not hold the underlying in which you are betting that the price will drop past strike price.
Quite frankly I'm not sure why I chimed in on this discussion. They are two completely different strategies.
$COSTAverageMAN
Long GOOG at $498.50
Short GOOG May 510C at 9.40
=
Short GOOG May 510P at 20.90
(assume zero STIR/dividends)
They are fungible in the present. The difference between the CC and the synthetic (short put) is the conversion arbitrage. The verbiage has nothing to do with it. These are arbitrage relationships that predate listed options trading. You're long the actual underlying and short an equal position in the synthetic. The relationship is inviolate.
To go long stock, short the call and long the put is to trade the conversion. It's dissection 101.