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I hear covered call sellers are making a killing in this market
- Thread starter stock777
- Start date
I think that you are confusing a cash secured Put with a covered Put.Quote from ssmegner:
You are kidding right? Lets look at one of the larger brokers, Fidelity. They have the following levels defined for options.
1 Covered Call Writing of Equity Options
2 Purchase of Calls/Puts (equity and index), and purchases of Straddles/Combinations (equity and index)
3 Equity Spreads and Covered Put Writing
4 Uncovered Writing of Equity Options, and Uncovered Writing of Straddles/Combinations on Equities
5 Uncovered Writing of Index Options, Uncovered Writing of Straddles/Combinations on Indexes, and Index Spreads
Then they have the following:
2. Select one investment objective:
A. Conservative- If you choose conservative, you will only be considered for Covered Call Writing.
B. Most Aggressive
So Fidelity clearly states that a covered call is a conservative investment but a covered put is 2 levels up and will only be approved for 'Most Aggressive'.
Either Fidelity is misleading folks or they do not understand their own products. There is no other explanation.
As I recall, a covered Put is a combination of short put and short stock. If my recollection is correct a covered put certainly has a higher risk than a CC.
Don
Quote from covered_call:
another think to keep in mind is what you can do with the premium. risk reversals take the premium brought in from selling the (covered) call and uses it to buy puts on the same stock / product. as im writing calls into the rally, the calls bring in more premium that the puts cost leaving $$ left over. i'll then take the left over $$ and buys calls on a beaten down stock.
You'd have to be selling calls a lot closer to the money then the puts you're buying. The use of the premium to just buy calls out right as we all know is a crap shoot. Buying calls or puts out right historically is a tuff tuff way to make money few few few people are successful at it.
In essence you're selling closer to the money calls then the puts you buy to even generate premium and then you'd only be able to buy few or further away calls with that small premium generated.
I believe this thread was about how well the covered call sellers were doing and we all know they're getting smoked.
Quote from ssmegner:
No. I don't mean to give impressions. I mean to state clearly. The fact that they clearly consider a covered (short) call a 'conservative' strategy and a cash covered (short) put a 'most aggressive' strategy is both misleading and false. The risk profiles are exactly the same.
Well, yes and no. A covered call is a hedging strategy for a trader who is long an equity for long term. For example, he may be in management and receives stock in compensation. He either wants to be exercised on his short call (to liquidate some of his holdings), or give some partial protection on the down side.
The trader with a short put is a short to mid term trader with no interest in the underlying.
Very different trading profiles.
Regardless the risk profiles are the same. HOw can one be more aggressive and one conservative if the risk profiles are the same. There is an attorney on a local radio show each week that discusses suing the various brokers for misleading information that causes folks ( in particular retirees) to lose their money. I personally feel that calling covered calls 'conservative' while cash covered puts (or covered with short stock) 'most aggressive' also misleading.
The difference is simple == the typical covered call trader is an investor who is already long the market. He already has downside risk, and, rather than hedging with a put, decides to do a partial hedge with short calls. The covered call is a blended position. Adding the short call is more conservative than holding long stocks alone.
The naked put guy starts with no initial position.
I thought that was pretty obvious.
The naked put guy starts with no initial position.
I thought that was pretty obvious.
Quote from cdowis:
The difference is simple == the typical covered call trader is an investor who is already long the market. He already has downside risk, and, rather than hedging with a put, decides to do a partial hedge with short calls. The covered call is a blended position. Adding the short call is more conservative than holding long stocks alone.
The naked put guy starts with no initial position.
I thought that was pretty obvious.
The typical covered call trader is not already in the market. The typical trader isn't educated on the synthetic equivalence -- they enter both positions concurrently. The preponderance of CC-advisory services belies your argument.
Short gamma is not a hedge.
Quote from cdowis:
The difference is simple == the typical covered call trader is an investor who is already long the market. He already has downside risk, and, rather than hedging with a put, decides to do a partial hedge with short calls. The covered call is a blended position. Adding the short call is more conservative than holding long stocks alone.
The naked put guy starts with no initial position.
I thought that was pretty obvious.
You are not addressing the question. Once a person gets to 'hedging' they have moved beyond the "Investor" buy and hold types. How they got into the position is irrelevant. The risk profiles are the same yet one is called by most brokers 'conservative' while the covered (cash or short) put is 'most aggressive'.
Second you slipped the discussion from covered puts to naked puts. We are not talking about naked puts.
Third, covered puts are also a blended position. The investor could have been short stock and wanted to hedge using a short put. Cash + short put is also a blended position.