SLV Silver...Is this legal, is this profitable??

[ET180]

Actually, no, what I stated is correct. Here's an example using SLV:

SLV last traded at 15.85 at the time of this post. The Jan 20 16 strike call last traded for 0.41. The Jan 20 15.5 strike put last traded for 0.28. The call is slightly more expensive than the put due to the cost of carry as well as underlying trading closer to 16 than 15.5.

Max loss for put:

15.5 - 0.28 (premium collected) = 15.22

Max Loss for covered call:

15.85 - 0.41 (premium collected) = 15.44

So selling a put here is less risky than buying stock and selling a call. Recall here that I'm talking about OTM put vs. OTM covered call (typical case) as stated in my previous post. Of course, the reward payoff is different. If SLV goes above 16 by expiration, then the covered call will produce a better return.

Also, my broker, IB, does not charge additional fees for assignment (I think TD Ameritrade also recently dropped their assignment fees), but even if they did, just close the position before expiration.

 

[BlueWaterSailor]

The call is slightly more expensive than the put due to the cost of carry as well as underlying trading closer to 16 than 15.5.

[...]

Of course, the reward payoff is different. If SLV goes above 16 by expiration, then the covered call will produce a better return.

And this is why you can't evaluate risk by just focusing on one side. Since the underlying is trading closer to one side vs. the other, both the risk and the return must be multiplied by that proportion to evaluate them correctly. Risk * reward is equal between the two sides; if it wasn't, you'd be able to arbitrage them against each other. Wow, free money! Those MMs are so stupid!... I don't think so.

https://www.risk.net/definition/no-arbitrage-pricing

As to closing before expiration - there are all sorts of games that can be played ("yeah, but I can roll it!", "yeah, but if I hedge it like this..."), but the key point remains: risk * reward for any trade in a given instrument is a constant.

 

[ET180]

And this is why you can't evaluate risk by just focusing on one side. Since the underlying is trading closer to one side vs. the other, both the risk and the return must be multiplied by that proportion to evaluate them correctly. Risk * reward is equal between the two sides; if it wasn't, you'd be able to arbitrage them against each other.

When comparing OTM puts vs. OTM covered-calls, the risk will always be lower with the OTM puts. Max reward will be greater for the OTM covered-calls. Otherwise, there would be an arbitrage opportunity as you pointed out.

 

[BlueWaterSailor]

When comparing OTM puts vs. OTM covered-calls, the risk will always be lower with the OTM puts. Max reward will be greater for the OTM covered-calls. Otherwise, there would be an arbitrage opportunity as you pointed out.

Sure. And the ratio of risk to reward for both is a constant.

I understand your point, but looking at just one side of the equation doesn't give you any useful information. I can click 'Buy' on any strike on the call side and see '∞' in the "Max profit" column; this does not make them "higher reward" trades.

 

[Cabin111]

So I pulled the trigger, but chickened out on the covered call below at $15. I bought 200 shares of SLV at $15.78. Then the next day sold 2 "sale to open" for the Jan 21 at $16.00...I sold it for $1.50. Got $300 minus about $1.35 in total fees. It's a wait and see. Just my feeling with the government printing money like this...Something will turn south (even with an election coming up). Later...Cabin