Covered Calls vs. Naked Puts

Except you own the stock and assuming it's dropped and your not called out you can keep selling calls on it month after month so even though your underwater on the price of the stock it is creating cashflow.

 

The naked put will always have less risk than buying the stock whether it goes to zero, infinity or Hoboken.

 

Rent is great when the building is burning down.

:eek:

 

That makes no sense. That is exactly the same thing as then selling puts the next month.

 

The risk can be greater than vega if you're trading positions expiring years-out. Buffett's massive put sale on the SPX and other indices carried more risk to rho than vega (while ITM) if vol had traded under historical-norms, pre-2007, depending on the lookback.

The rho can represent a massive swing in PNL tied to rates. Buffett's position moved >$600MM on rates alone, due to the change in the implied forward. 10bp in dividends results in almost a $20MM variance.

 

This convaluted posting might explain your handle.

 

Watch out for Mike, he's a badass.

 

I think either you were asleep during the class or Hooper should be banned from teaching options. It is funny how you view covered calls as safe but naked puts have unlimited risk potential. Why don't you think for a minute what makes covered calls so safe and what makes naked puts have unlimited risk potential. You might learn something....

 

Not only are you right but you have good taste in football (UK).

 

Go Blues!