Covered puts anyone?

[ET180]

If you want to be short buying puts is the the way. Selling covered puts just means your long stock. If you do not want to be long the stock at the (strike price - premium) Then I would advice against such a trade.

If I want to short for hedging purposes I go long puts. selling calls naked is not my thing nor shorting stock outright and being exposed to unlimited risk + the cost of carry etc..

How does selling covered puts mean one is long stock? I thought a covered put is a short put + short stock. Therefore, one is effectively flat below the strike price and effectively short above the strike price.

The problem with going long puts at higher IV is that the premium gets expensive which means that your break even moves further away / probability of making a profit gets smaller. Whereas selling calls during high IV means that your premium collected is greater and you're more likely to make a profit. That said, I think best way to play Monday is probably going into it with long puts, but short duration. Corrections usually happen quickly and no need to purchase puts expiring this summer. Just a week or two should be good enough. I'm not worried about shorting 280+ SPY calls expiring in a few weeks. I doubt we'll be going back to all time highs anytime soon. At least not before we test the 2700 level and possibly lower. That's my guess, we'll see.

 

[spindr0]

I don't sell covered puts as an opening position since the synthetic offers less slippage and commissions. However, I may leg into one if I am short the underlying and get to a point where I have some downside gain and would like to nab some fat premium. It's situational.

 

[spindr0]

Selling covered puts just means your long stock.

HUH?

 

[prc117f]

HUH?

You are long stock. It is equivalent to a covered call. It is not a free cash deposit you have obligations to purchase stock at the strike price and if you enter a short put position you need to consider equivalent to being long stock and manage your risk accordingly.

I treat my short put positions as equivalent long stock position and manage risk and end game accordingly.

 

[Pekelo]

I treat my short put positions as equivalent long stock position and manage risk and end game accordingly.

I don't care how you view or treat your positions, but don't confuse the readers with inaccurate info. A covered put is nothing like a long stock. Period.

 

[prc117f]

How does selling covered puts mean one is long stock? I thought a covered put is a short put + short stock. Therefore, one is effectively flat below the strike price and effectively short above the strike price.

The problem with going long puts at higher IV is that the premium gets expensive which means that your break even moves further away / probability of making a profit gets smaller. Whereas selling calls during high IV means that your premium collected is greater and you're more likely to make a profit. That said, I think best way to play Monday is probably going into it with long puts, but short duration. Corrections usually happen quickly and no need to purchase puts expiring this summer. Just a week or two should be good enough. I'm not worried about shorting 280+ SPY calls expiring in a few weeks. I doubt we'll be going back to all time highs anytime soon. At least not before we test the 2700 level and possibly lower. That's my guess, we'll see.

No a short put = long stock short call. It is equivalent to a covered call. Shorting a put is a more efficient way of entering a long stock/short call equivalent position since you only initiate an opening trade VS two opening trades/twice the commission.


If you sold puts on SPY you have a neutral to bullish view on the underlying otherwise why sell short those puts?

You are not shorting stock by selling short a put, going long a put is the equivalent of shorting a stock with limited risk VS actually selling short stock and being exposed to unlimited risk unless you hedge by going long calls giving you the ability to exercise those long calls to close out your short stock position in the event of a black swan situation where the stock gaps up on monday. (or sell to close the calls and buy stock with the proceeds,depending on how much extrinsic value left in those long call positions)

 

[prc117f]

I don't care how you view or treat your positions, but don't confuse the readers with inaccurate info. A covered put is nothing like a long stock. Period.

So if that short put is DITM do you still not consider it long stock? lets say DITM and delta at 98-99? expiration occurs end of the day?

Cause it sounds like a covered call to me that friday.

 

[spindr0]

You are long stock. It is equivalent to a covered call. It is not a free cash deposit you have obligations to purchase stock at the strike price and if you enter a short put position you need to consider equivalent to being long stock and manage your risk accordingly.

Your explanations are totally confused. You need to brush up on the 6 basic positions of the Synthetic Triangle, all of which are variations of S + P = C

 

[Pekelo]

OK let's show an example because some readers here are getting confused. Let's say I short 100 TSLA shares at $345 and sell a March put 42 days to expiry 345 strike for $20. Since 1% of Tesla is 3.45 so the 20 bucks premium is 5.7% return in 6 weeks, so app. 1% per week.

Are we clear so far? Good. Let's see the possible outcomes at expiry:

1. Tesla stays were it is now, I made 6%, the puts expiry worthless or I buy them back close to zero. I am still short the stock so I can repeat the strategy and sell another Apr puts 5-7 weeks out.

2. Tesla is at $325 or below. I just let them put the stocks to me and that effectively closes BOTH positions (the stocks cover my short position) I gained the possible max. 6%.

3. Tesla is between 325 and 345, let's say at 335. I made $10 per stock plus half of the premium gains, and I can decide if I want to do as it happened in #2, or if I want to keep playing, I buy back the puts for $10. I am still short the stock so I can repeat the strategy as I did in #1.

4. The stock goes against my position and closes at 365 or above. Anything above 365 is a loss, puts expire and I decide if I want to keep shorting and selling more puts or just close the position by covering the shorts.

5. The stock closes slightly up at $355. I am still at a small gain because the premium of $20 is more than the loss from the short, $10 so I still made about 3% in 6 weeks.

That is about it...

 

[Pekelo]

So if that short put is DITM do you still not consider it long stock?

Of course not. The covered put makes money when the stock goes down, how the fuck would that happen with long stocks?