he was replying to this post:
MTE
Registered: Jan 2005
Posts: 3182
04-21-11 02:24 PM
"Here's your strategy simplified: sell 46 put, sell 54 put.
In other words, all you are doing is selling two puts with different strikes."
Opinion on this strategy
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he was replying to this post:
MTE
Registered: Jan 2005
Posts: 3182
04-21-11 02:24 PM
"Here's your strategy simplified: sell 46 put, sell 54 put.
In other words, all you are doing is selling two puts with different strikes."
why is it every few weeks we have a debate about covered calls and naked puts.? is it so hard to understand?
covered calls=naked puts
naked puts = covered calls
both = long stock less premium
find an options analyzer and run the numbers. i am not even saying one is that much better than the other. both give you small gains and large losses. we should at least understand what we are doing.
i suspect the op somehow thinks that one side of his play protects the other. that is not the case. they are both two sides of the same coin.
OK.
A stock is $50 at expiration:
If I sold a $54 PUT, I would have the stock PUT to me at $54.
If I sold a $54 CALL, nothing would happen.
What did I do wrong?
I don't know what the OP thinks about one side protecting the other. I think owning the stock protects the CALL Sold at $54. There is no protection for the PUT at $50.
A stock is $50 at expiration:
If I sold a $54 PUT, I would have the stock PUT to me at $54.
If I sold a $54 CALL, nothing would happen.
What did I do wrong?
I don't know what the OP thinks about one side protecting the other. I think owning the stock protects the CALL Sold at $54. There is no protection for the PUT at $50.
if you sold a 54 put and the stock was at 50 you would get the stock put to you if held to expiration. now calculate out what your net cost would be for that stock. the same as the covered call. so a naked put =a covered call at expiration. in both cases you end up with long stock less premium recieved.
I see that the P/L graphs are the same but hereâs my analysis. BTW I appreciate you helping me with this:
Selling $54-PUT:
Pay $54 for the stock
Receive $1 dollar for selling the option
Result, $53 dollars for a $50 dollar stock
Own twice as many shares as before.
Selling the $54 CALL:
$1 dollar for selling the option
Own the same number of shares as when I started.
Do you agree that at expiration one senario owns twice as much stock as the other?
I have to leave will get back to this later ~1hour.
Thanks
Selling $54-PUT:
Pay $54 for the stock
Receive $1 dollar for selling the option
Result, $53 dollars for a $50 dollar stock
Own twice as many shares as before.
Selling the $54 CALL:
$1 dollar for selling the option
Own the same number of shares as when I started.
Do you agree that at expiration one senario owns twice as much stock as the other?
I have to leave will get back to this later ~1hour.
Thanks
stock at 50. sell 54 put. you recieve $4 plus premium of $1 in this example. you pay 54 for the stock. but you recieved $5 for the put.
"Do you agree that at expiration one senario owns twice as much stock as the other?"
no because you replaced the covered call with the $54 put so you started with 0 shares.
i have to leave too. for the whole weekend. good luck.
As I thought about it I came to the same conculsion that if you sold the stock the two senarios would be equal.
But since they are equal why worry about. If the OP wants to own the stock and sell the call then why do we have to switch to the other situation before we discuss the pros and cons of the original post.
