It makes all the difference in the world under circumstances where you hold the underlying but NOT the call. Because then the positions are not analogous. And that's a frequent situation in most covered-call writing strategies when the price drops - because you only write calls at a strike where you no longer have adequate margin of safety and want out. If no one's willing to pay you for that call (because the price is currently too low), you don't write a call and are just happily long and collect dividends. All too frequently option math weenies miss the forest for the trees.
Uh, what? Most of the consistent dividend stocks were comparatively resilient in 08-09. I think the covered call/dividend portfolio I helped my dad set up lost about 20% on paper, and no intrinsic value whatsoever (ie. no dividends were passed). The paper value was back 6 months later. Layer on top of that a decade of selling calls, and your argument that there was some sort of lesson to be learned doesn't make much sense.
The point is, it's DIFFERENT than selling puts when done the way most people do it. They're not the same position. The safety in either case is dependent on the underlying, but pretending to equate them is option idiocy.
The difference lies in preferentially holding stock for periods in which you don't write calls, and writing calls against a pre-existing share-position. If traded independently it's simply nonsense to choose the CC unless you're taking a large bet on rates.
This has nothing to do with rates (or very little). More ridiculous options nonsense. Since we were talking about the 2008-2009 timeframe, here's an example covered call trade from that period. Feel free to explain how 1 or more short puts would be equivalent Trade #1: Buy LLY @ 30.00 the week of Oct 10 via limit order (margin of safety says maximum holding price is $36) ( receive $0.47 dividend week of Oct 14 ) Trade #2: Write covered call, JAN09, strike $36, week of Dec. 12 (collecting maybe 0.50 of premium, not that it matters for this example) (called out of position at JAN expiration) Net result: $6 of stock profit, $0.47 of dividends, $0.50 of premium, position flat. Now, care to replicate that with only short puts? If anyone tries to use the underlying or a long call, I'll just laugh in their face
Dude, like FreeThinker mentions, sell the 36 strike put - you would have received for example $700 up front - the stock moves to 36 and it expires worthless and you get the $700 - just like the CC writer. It's really not that hard and nothing to laugh at! JJacksET4
You can substitute a deep ITM call for the stock (all intinsic) making it a legged in vertical. You can also substitute a deep ITM naked put for the long stock but I wouldn't recommend it because of the call write being uncovered (stock rises above put strike and naked call goes ITM). Dividend will be priced into the put. Pretty much the same result but via a less desireable approach.