Covered Call vs. Short Put

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

  1. The difference between the two (assuming =vol and haircut) is the rho of a box under some forward rate var. IOW, there is little tangible difference. It's a bet on rates, albeit a very, very small bet.
     
    #31     Dec 23, 2011
  2. newwurldmn

    newwurldmn

    The only material difference I think about is related to taxes.

    A covered call that is not exercised gets tax defferal (goes into the cost basis of the stock and realized when the stock is sold) vs a short put gets taxed in the year it expires.
     
    #32     Dec 23, 2011
  3. In the retail world, maybe...not in the "mark to market" world. Good point however, everyone should apply all factors to their decision making.

    Good to hear from Atticus.... hope all is going well with you?

    Don
     
    #33     Dec 23, 2011
  4. newwurldmn

    newwurldmn

    Agreed.
     
    #34     Dec 23, 2011
  5. stoic

    stoic

    That would be incorrect. Any Option not exercised, long or short is treated the same for taxes. Only when they are exercised does it have a possible adjustment to the cost basis on the underlying.
     
    #35     Dec 23, 2011
  6. newwurldmn

    newwurldmn

    You are correct. I should shut up about this.
     
    #36     Dec 23, 2011
  7. In terms of absolute dollars, they differ in these senses: (1) one gains from carry changes, the other loses from carry changes; (2) implications on taxes. There are also a couple other very fundamental and valuable differences between the two, not writing them here, because not everything should be written in a forum.
     
    #37     Dec 24, 2011
  8. Really? There's some sort of a massive monumental secret that you ain't telling us about then? 'Cause it's just too valuable? And what was that about the carry?

    At any rate, on a serious note, I can think of one important (and obvious) difference that I haven't heard mentioned earlier (I could be wrong). Specifically, I mean the pin, if the options are physically-settled.
     
    #38     Dec 24, 2011
  9. And in this regard the covered call or the short put may be preferable? In both of them you may be exposed to the pin risk.
     
    #39     Dec 24, 2011
  10. I dunno what's preferable... Depends on a variety of factors, I imagine.
     
    #40     Dec 24, 2011