Buying Covered Calls

Today I realized one can actually buy covered calls, not just sell them. Pretty interesting concept, and I wonder what would be the advantage of doing so. Shorting the stock and buying the calls. It should be the equivalent of buying puts, maybe that is why nobody is doing it?

Or is there something else what I am missing?

 

Buying the stock and selling calls is the same as shorting puts so we also wonder why people don't just short the puts. As an opening transaction does not make much sense but people may leg in to it after starting out long/short the stock.

 

Know what happens when short stock during dividend payout?

 

That is selling CC. I am talking about the opposite, shorting the stock and buying calls. That is why I called it buying CC. I guess it provides a little protection against adverse movement when shorting, but just buying the puts would be the same, so nobody actually does it.

But here is the question: When I sell a CC and set up the trade so it executes together with the option, somebody has to do the opposite. I guess maybe the MM sells the stock from his inventory instead of shorting it...

 

Good point, although the stock price usually adjust downward. I guess one would pick companies not paying a dividend.

 

My point is you can ask the same question with selling covered calls, why not short the put outright.

Also when you sell a CC, you are not buying the stock and selling the call from the same market maker who takes the other side. Your stock purchase is fulled like a normal stock order and your short call is filled like a normal short call. Someone is NOT taking the other side of your covered call.

Covered calls from which ever angle (long/short) are usually done by stock traders who enter as 1 position or leg in but most P-C parity people would rather do the option rather than the S-C or -S+C portion.

 

It is called "hedging". And I hedge every timeframe above 59 minutes thru monthly

 

How does it work out for you in terms of capital efficiency? Do you have portfolio margin and thus can generate reasonable ROC even on delta neutral plays?

 

It does create a credit spread with a bearish sentiment. If the stock price goes up against the short stock, the long call will rise offsetting the loss. You're right, it's simpler to buy otm put. However, payment is required.

 

You owe the dividend payment it to the person you borrowed the shares from. Not fun! Rather than short stock, buying ITM put has similar effect.