Gourmet....
Writing Covered Puts
- Thread starter exQQQQseme
- Start date
Gourmet....
A lot of interesting responses. Thanks to everyone. I was pleasantly surprised to see that others also like this strategy. It is far and away my favorite strategy and also the one I have had the most success with.
Yes, it is a synthetic naked call write. But, that's academic because while my broker won't approve me for naked call writing, I am approved for covered put writing. Go figure.
Anyway, thanks to all those who contributed.
Yes, it is a synthetic naked call write. But, that's academic because while my broker won't approve me for naked call writing, I am approved for covered put writing. Go figure.
Anyway, thanks to all those who contributed.
If you can explain to your broker why what you've been doing is equivalent to what you'd like to do, and you've been doing it for a while, that will probably show enough options expertise for your broker to up your permissions.
If not, you can always change brokers. Especially if your broker shows other signs of options weirdness.
Smart move.
There is a big difference in margin requirement, so no brokers will accept this synthetic theory. For example tos will allow you to trade naked call, or covered put, but you will have different margin requirement under reg-T (not pm).
I believe most people will do a lot better doing covered writing than naked writing because the reg-T will prevent you from over-leveraging, and over-leveraging is the main reason for blow-up.
For me the big advantage of writing covered puts over selling naked calls is that with the former I don't have to concern myself with getting assigned. This way, if assigned, I MAX out profitwise and I'm out of the trade. I love it. I have a business that keeps me occupied full time. My trading is just a sideline. If I can pick up a grand or two per month writing covered puts, I'm in hog heaven.
Commiebat, my broker is Schwab. I have a long excellent relationship with them. On my many covered put writes, I get excellent service and trade execution. I am very happy with their commission schedule. And I really like their method of computing margin interest expense. My monthly interest debit is never more than $10 per month. Hence, my cost to carry is zilch.
Once again thanks for your responses.
Commiebat, my broker is Schwab. I have a long excellent relationship with them. On my many covered put writes, I get excellent service and trade execution. I am very happy with their commission schedule. And I really like their method of computing margin interest expense. My monthly interest debit is never more than $10 per month. Hence, my cost to carry is zilch.
Once again thanks for your responses.
I got into one of these last year. I allowed myself to be assigned on the short call leg of an IC or IB (don't recall which). I then wrote puts on the short stock, which were also assigned.
My broker (Fidelity) bought the stock, and I was in a box position (long and short stock at the same time) for a long time. I called the trade desk and they wanted me to write a letter before they would cancel the positions. Being a procrastinator (plus not asking for the address to send the letter) this position persisted for way too long. I sent an email which wasn't answered. I went to the local office and was told to call the trade desk. In the meantime I was losing interest due to margin requirements.
I switched to Schwab and they canceled it after one phone call.
I don't even know if I made or lost money on the original trades.
My broker (Fidelity) bought the stock, and I was in a box position (long and short stock at the same time) for a long time. I called the trade desk and they wanted me to write a letter before they would cancel the positions. Being a procrastinator (plus not asking for the address to send the letter) this position persisted for way too long. I sent an email which wasn't answered. I went to the local office and was told to call the trade desk. In the meantime I was losing interest due to margin requirements.
I switched to Schwab and they canceled it after one phone call.
I don't even know if I made or lost money on the original trades.
Elliot, great point about the boxed long and short positions. It creates an erroneous interest charge. Schwab works great with me on those occasions when it does happen. Never ever need to make one phone call.
Good point. Thanks.
Good point. Thanks.
That makes no sense at all.
If the stock moves up 10 pts, ignoring the premium received, you lose the same amount either way (covered put vs naked call) It makes no difference if you're already short the stock or get assigned short at a later date.
If the stock drops, you max out either way (covered put is exercised, naked call expires worthless).
Spindro, I agree with you 100% with everything you said. I understand the synthetic equivalence. From a result standpoint, you are right.
But, I've been shorting stock for many years...longer than I have been trading options, which is also a long time. Perhaps it's all in my head, but I'm comfortable and happy doing it this way. And consistently profitable to the degree I mentioned on page 3.
Thanks for your posting. And I will repeat: You're right!!! It is the same.
But, I've been shorting stock for many years...longer than I have been trading options, which is also a long time. Perhaps it's all in my head, but I'm comfortable and happy doing it this way. And consistently profitable to the degree I mentioned on page 3.
Thanks for your posting. And I will repeat: You're right!!! It is the same.