Cash Secured Put 6.5% vs Covered Call 44.8% Return on UAVS

Discussion in 'Options' started by benysl, Feb 15, 2021.

  1. benysl

    benysl

    Ok here is the strategy that I used. I am a options wheel strategy person
    So I start usually selling a cash secured put and after assign sell a covered call on it

    But in today article let take a more indepth look on the two and do a comparison

    Stock Symbol : UAVS
    I am not going to bored you with what stock it is and what it does and what is their earning you can search that on google and youtube. Rather I focus on strategy


    Comparison
    Stock price at the time of trade 11.57
    Date 9th Feb 2021
    Options expiry 19th Feb 2021

    Cash Secured Put 10 strike $0.65
    Average price $9.35
    Max Return $65 or 6.5%
    Good return in my opinion 6.5% in 10 days with a 20% downside protection from 11.57 to 9.35


    Covered Call
    Long Stock 11.57
    Sell 15 Call at 1.05
    Average Price of 10.52
    Max Return if Stock is above 15 by expiry is $4.48 or $448 or 44.8% return

    That is this is a exponential growth between cash secured put vs covered call.

    Should we dump cash secured put and just do covered call. No I think we need to have a mix of it. I like to sell cash secured put and get assign on the stock and turn around and sell a covered call that is further away for the exponential growth.


    See the image for a better comparison
    [​IMG]

    Cash Secured put has a lower average price and it is much safer while direct covered call is a higher potential return.
    Sometimes it is depend what you feel on the stock, if you think the stock is going to fall it may be better off selling a cash secured put first, but if you think the stock is going to pick off then do a outright covered call. Both strategy allow you to collect some premium in case your prediction is wrong which I am always wrong

    I did a live trade on this and you can watch it here



    If you have a question you can post it here and I will try my best to answer it
     
  2. newwurldmn

    newwurldmn

    The stock is 14.75
     
  3. benysl

    benysl

    the stock close at 14.75 on friday.
    I traded the stock live on 9th Feb. Please watch the video
     
  4. FSU

    FSU

    Not really an accurate comparison between a cash secured put and a covered call as you are using different strikes. You are comparing selling a 10 put vs a 15 strike covered call.

    A covered call and a cash secured short put of the same strike are synthetically the same thing. You are not comparing the two here. Very deceptive headline. Should read comparing selling out of the money puts/in the money covered calls vs selling out of the money covered calls/in the money short puts.
     
    ironchef, guru, Option_Attack and 2 others like this.
  5. So, what's the question?

    A written put will ALWAYS have less profit potential than a purchased call... regardless of the strike.
     
  6. guru

    guru

    Here is why Covered Call @15-strike is identical to cash secured Put @15-strike:

    Covered Call = 100 shares - 1x 15C.

    100 shares can be replaced with synthetic long = 1x 15C - 1x 15P

    Therefore if you replace 100 shares with synthetic long then you have:
    Covered Call = 1x 15C - 1x 15P - 1x 15C = -1x 15P

    You end up with just a sold put that is mathematically equivalent to the covered call at the same strike.
     
    Last edited: Feb 15, 2021
    yc47ib likes this.
  7. jnbadger

    jnbadger

    Yes. Options Trading - The Hidden Reality is the best book I have read on options. It explains synthetics and equivalents beautifully. Covered calls just don't make sense IMO.
     
    guru likes this.
  8. Just sell both get both premiums and let each of the sellers counteract your risk either way it breaks. Their loss is your gain.
     
  9. ironchef

    ironchef

    For newbies, the only option trades allowed by your brokers are covered calls and no naked puts.
     
  10. benysl

    benysl

    I agree with some of the comment
    yes I am comparing a otm 10 put vs a otm 15 call
    but what i am also pointing out is there is more potential for selling call sometime (or all the times)
    but we should use a mixture of both selling otm put and sometimes selling call
    it all depend on the outlook of the underlying you are trading, if outlook is bullish then do a covered call maybe better
     
    #10     Feb 15, 2021