Short put = covered call in theory but in trading ...

[nravo]

Ok, I get the theory of the synthetic, but are they equal considering margin required for each is different, especially since you can't do a short put in an IRA unless it is cash-secured?

 

[spindr0]

Assuming that there's no mispricing, they are equal on a 1:1 basis since all components are priced in.

The margin requirements are different. If you go there, you're no longer on a 1:1 basis.

 

[tvgram]

Using the current market on the ETF for Emerging Markets (Symbol: EEM), I analyzed a covered call selling an ATM call in December and a short ATM put in December, then superimposed them for easy comparison. You can really see only one line, because the risk graphs for both are almost precisely the same.

See the next post if you want to see how they compare on a yield basis, however.

 

[tvgram]

Now I used the same ETF for Emerging Markets (Symbol: EEM), with the same positions: a covered call selling an ATM call in December and a short ATM put in December, then superimposed them for easy comparison. But this time the vertical axis is yield rather than profit/loss.

The difference of course is solely due to the lower capital requirement of the short put (the stock was purchased in full - no margin was used).

 

[nravo]

As I figures. Thanks. Was trying to mimic the yield (not risk characteristics) of a short put in a non-IRA in an IRA. I guess short put on the stock futures rather than the stock is a solution, if it is offered and I don't think FO are.

 

[a529612]

Which broker will let you trade anything with margin requirement in an IRA? Cash secured short put or spread is no go for me.

 

[nravo]

Quote from a529612:

Which broker will let you trade anything with margin requirement in an IRA? Cash secured short put or spread is no go for me.

Can trade futures and options on futures in an IRA at IB, possibly even Leap spreads. Don't think anyone offers options on single stock futures, however, which is what you would need o write a naked put on a stock in an IRA.

 

[ssmegner]

I trade cash covered shot PUT's in my IRA at www.thinkorswim.com. You can do any strategy you want in an IRA at TOS except for naked calls and short stock. The only reason they do not allow those is the risk of a margin call that you could not make because you cannot contribute more money in your IRA. And there are no BS options levels.

 

[nravo]

Quote from ssmegner:

I trade cash covered shot PUT's in my IRA at www.thinkorswim.com. You can do any strategy you want in an IRA at TOS except for naked calls and short stock. The only reason they do not allow those is the risk of a margin call that you could not make because you cannot contribute more money in your IRA. And there are no BS options levels.

Looking for short put -- naked, not cash-secured. I can do that with a covered call.

 

[ssmegner]

It is the same. For a covered call you have to buy the stock anyway. If inside an IRA it is not on margin. So you use your cash to buy the stock or cover your short put. The risk curves are identical. With covered calls you have commission buying then selling the stock and writing the call. For the short put you have 1 set of commission. Put premiums are normally better than call premiums.