Covered Calls vs. Naked Puts

Discussion in 'Options' started by aradiel, May 4, 2010.

  1. I have IB as my broker. It allows me to check margin requiremnts before placing a trade. I ran the NP at 5% OTM and compared it to the CC in my examples. The SPAN margins were virtually the same. For futures options, margins are calculated much differently than equities and index options.
     
    #31     May 4, 2010
  2. The time value of the put, either DITM or OTM, is higher than the call. For instance, the may 1125 put had value of 7 when the ES was 1190. The 1255 call was only worth 2.
     
    #32     May 4, 2010
  3. You're wrong.
     
    #33     May 4, 2010
  4. Edit: All "long" arbs trading under, and all "short" arbs trading over terminal value.
     
    #34     May 4, 2010
  5. You're quoting the outside combo; otherwise known as the risk-reversal. The covered call and short put much share a strike to maintain equivalence (static time).
     
    #35     May 4, 2010
  6. aradiel

    aradiel

    To say CC and NP have profit graphs with the same shape is one thing, but are also those graphs identical, with the same (not only parallel to each other) abscissa and ordinate intersections?

    For example, lets say right now the stock/future/commodity XYZ is being traded at $ 30 and its june 33 calls are traded at 0.30. I buy one XYZ and write one june 33 call against it.

    In this trade, at expiration, my breakeven would be XYZ at 29.70, my max gain 3.30 and my max loss 29.70.

    If I would replicade this position with a naked put, with the same breakeven, max gain, max loss points, the june 33 put would have to be trading exactly at 3.30... but will it? This is an honest question since where I trade (Brazil) there is virtually no put trading and I dont have a clue. Will the put be above 3.30, bellow it? What variables are taken into consideration?
     
    #36     May 4, 2010
  7. $30 - $0.34 = $29.66 breakeven at expiration
    Max Gain = $3.34
    Max Loss = $29.66
     
    #37     May 4, 2010
  8. aradiel

    aradiel

    I meant a .30 call premium, already corrected the typo, thanks for the heads up.
     
    #38     May 4, 2010
  9. aradiel

    aradiel

    Does it mean that calls and puts should have the same time value, no matter the nature of the underlying, the strike, the volality or the remaining time until expiration?
     
    #39     May 4, 2010
  10. lindq

    lindq

    What they both share is that they are very lame strategies.

    Limited upside with unlimited downside.
     
    #40     May 4, 2010