selling CALLS vs. buying PUTS
- Thread starter jimclark
- Start date
Sure if you leverage up on a bunch of biotechs and mircropharms. How bout some common sense? Yeah, I know, it's et; there ain't such a thing.
short calls, if they're not covered, leave you open to unlimited upside risk...sell naked calls in F @ 10 and stock goes to infinity, you gotta pay that spread.
covered calls on the other hand limit your upside potential.
covered calls on the other hand limit your upside potential.
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Short calls = limit reward/unlimited risk & margin requirement
Long Puts = Significant rewards/limited risk & debit
One cannot say outright one choice is always better than the other, but in general I would choose the one with limited risk and potential for huge profits over the one with a limited reward and potential for huge losses.
This is an over generalization but the question was in general too.
Long put all you can lose is the premium. Short call and you have the same ultimate risk as a naked short. If the stock goes from $10 to $100 you are going to get shafted.
Secondly, long put has a much bigger payoff in a big move down, than short call has in a move up. Short call is a high probability, low payoff trade if it works. If it fails, its a high loss trade. Long put is the opposite - most times it loses, but loses small; when it wins, it wins big.
But the biggest difference is that long put has defined risk. Short call has undefined risk.