Covered Put Writing

Discussion in 'Options' started by exQQQQseme, Feb 10, 2009.

  1. Anyone into Covered Put Writing? (Short the stock; Short a Put)

    I love it.

    4Q (my favorite stock for this strategy - QQQQ)
     
  2. but if the stock goes up.

    how does being short a put help?

    The premium would drop and you still have stock out there that you borrowed.
     
  3. You do know this is exactly equivalent to being short a naked call option - with the same strike price and expiration as the put.

    Mark
     
  4. Noob and Dagnyt: Thank you both for very good and accurate replies.

    1) Noob: If the stock goes up, the short put profits, but not as much as the short position on the stock looses. With QQQQ, if the stock goes up a dollar, I roll up the short puts.

    2) Dagnyt: No question that you're right. Yes, this is a synthetic short Put. What I generally do for protection is to make a diagonal out of this by purchasing an out of the money call several months out. For example, if I am writing current month Puts at the money (Currently $31) my inclination would be to buy Jun $36C's. Not a hard and fast rule as to what Call I buy here.

    There are other considerations here...mostly money management stuff. I'll elaborate if there is an interest.

    4Q
     
  5. Fine, you are trading the synthetic equivalent of a diagonal call spread.

    No elaboration needed.

    Mark
     
  6. BTW, you cannot "write" the put, you sell it. "Writing" is for calls only. Amateurs ...
     
  7. Dagnyt, the elaboration would lie in the continuous adjustment modus operandi.

    4Q
     
  8. The term 'write' is appropriate for ANY option you sell in an opening transaction.

    The seller is 'writing' the option contract, which does not exist until it is sold.

    Mark
     
  9. I agree with Mark. Writing either a Put or Call simply means Selling to Open. Besides, I hope this thread doesn't get bogged down in a semantics discussion.

    4Q
     

  10. You can write all the puts your clearing firm will allow depending on your capital. The verb to "write" is not exclusive to calls. In addition calls and puts are really the samething when you really learn options.

    And you call others amatures ? ROTFLMAO
     
    #10     Feb 11, 2009