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Long stock + short put options: How is this strategy called?
- Thread starter crgarcia
- Start date
... just a little boost, yet don't want to get completely into options trading.Quote from crgarcia:
Thanks Don
I'm not looking to hedge now, rather to have a bullish/neutral strategy.
I swing trade, so I can get out rather quickly to avoid/minimize the downside risk, just want to give the long stock a little boost during bullish/slightly bullish markets.
Quote from Bogan7:
Not sure its a covered call arent you selling calls against held stock?
i said synthetic covered call (ratioed).
a naked put is a synthetic covered call. since besides the naked put, there is also long stock position involved, the overall position is a ratio synthetic covered call.
iow the position is syntetically equivalent to long stock and short a ratio of calls.
i dont understand the fuzz, this is a viable strategy, it entails long delta and short vega. probably is much better than any vol spreads or pure gamma scalping bet that carry extremely negative expectancy.
Yep, I know shorting puts is a bullish strategy...Quote from cgroupman:
My thought is that you should rethink trading until you understand that short puts equal a long position. not being critical, just that it makes sense to fully understand the option concepts.
c
... that also makes some money if the stock (ETF in my case) doesn't move, profiting from time value.
Just an example of how selling a naked put has the same "risk reward" as a covered write.
Assume stock is $40.
Assume both calls and puts are trading at $2.00
Buy stock at $40. Sell call for $2.00
Maximum profit is $2.00
Maximum loss is $38.00 (if stock goes to zero).
Sell naked $40 put.
Maximum profit = $2.00
Maximum loss is $38.00 (if stock goes to zero).
This is why Wade Cook's teachings were so flawed. Why pay interst to buy stock?
Collect $$ from put sale instead, save both interest and transaction cost.
Now, if you already have a stock (or ETF, whatever), then sure, why not sell some time premium.
FWIW,
Don
Assume stock is $40.
Assume both calls and puts are trading at $2.00
Buy stock at $40. Sell call for $2.00
Maximum profit is $2.00
Maximum loss is $38.00 (if stock goes to zero).
Sell naked $40 put.
Maximum profit = $2.00
Maximum loss is $38.00 (if stock goes to zero).
This is why Wade Cook's teachings were so flawed. Why pay interst to buy stock?
Collect $$ from put sale instead, save both interest and transaction cost.
Now, if you already have a stock (or ETF, whatever), then sure, why not sell some time premium.
FWIW,
Don
Quote from cgroupman:
My thought is that you should rethink trading until you understand that short puts equal a long position. not being critical, just that it makes sense to fully understand the option concepts.
c
Funny you berate someone for not understanding options. Short puts do not equal a long stock position. For them to be the same, they would need to behave the same, which they don't.
For starters, a long stock position has unlimited upside, whereas a short put does not. Their risk graphs are entirely different.