Covered Call vs. Short Put

Discussion in 'Options' started by dragonman, Dec 20, 2011.

  1. Another big advantage of selling the put is the cost of trade. Typically in a margin account it ends up cheaper than stock + call position.

    -gariki
     
    #11     Dec 20, 2011
  2. Maverick74

    Maverick74

    Those are completely different trades. It's like saying I could buy 100 shares of a stock if I'm bullish or 50 shares if I'm just a little bit bullish.
     
    #12     Dec 20, 2011
  3. Maverick74

    Maverick74

    No, the dividend is not "in" the put. It's priced into the put relative to the delta of the put. The IV does not drop. The dividend has nothing to do with the IV.

    And there you go also using two different trades. An ATM call and ITM put are two different examples. An ITM put with a -100 delta will have the dividend priced in. The ATM option will have roughly 50% of the dividend priced in.

    And you don't exercise an ITM put on ex-div, you exercise an ITM call ex-div. If you exercise your ITM put you will be short stock and you will now have to pay the dividend to the long stock holder.
     
    #13     Dec 20, 2011
  4. I'll do that when I become OC-Ded :)
     
    #14     Dec 20, 2011
  5. If the UL stays around the same price post ex-div, it means that the UL rose by the amount of the dividend. Have you considered that IV fluctuates day to day? It could rise, drop or stay the same after ex-div. That's due to market forces, not the dividend.

    Dividends are priced into both puts and calls. How much is priced into each depends on how far the UL is from the strike.
     
    #15     Dec 20, 2011
  6. Not sure I understand your logic on this. Can you clarify please.
     
    #16     Dec 20, 2011
  7. what logic :D. spindr0 is most likely joking; or if not then he shouldnt be trading options for now. They are both exactly the same trade. No free money here :).


    -gariki
     
    #17     Dec 21, 2011
  8. I'm aware they are different trades - the OP was asking why someone might choose one over the other. I was showing that in many examples in text, etc. CCs are shown as selling the higher strike, shorting puts are shown as selling the lower strike.

    JJacksET4
     
    #18     Dec 21, 2011
  9. donnap

    donnap

    Yes, and you often see better liquidity with OTM options.

    If you can gain or save a few cents with the OTM CC over the ITM NP, it is the better choice.

    IOW, ITM option trades may be prone to greater slippage.
     
    #19     Dec 21, 2011
  10. Covered call writers never lose money on the options sold... tho sometimes the underlying stock gives them a wee bit of a problem

    :D :p :cool: :eek: :) :( :D
     
    #20     Dec 21, 2011