Yes, the call premium does include the carry, but the capital tied up in the stock cancels it out, which is what you said anyway.
Isn't the carry on the stock equal to interest rate? Which is what Don was getting at? (forgive me if this is an ignorant question as I'm new to options trading)
Yes, so basically, you don't get any interest, which is the same as just selling a put and keeping the cash.
The cost of carry is included in the price of a short call, but not on a short put. So effectively you are getting interest with a CC, but not on a NP unless your broker pays decent interest on the cash security. OptionsXpress pays minimal interest on the cash for a cash-secured Put so a CC is a better deal. As I recall TOS also pays minimal interest on Cash-security in an IRA. As I said earlier, this issue (interest on cash security) can amount to a lot of money. Don
It might help to know that the synthetic of a collar is a vertical spread. So if you leg in and can net a credit equal to the difference in strikes, it's riskless.
As I said above, yes the cost of carry is in the call, but you also forgo the interest on the capital tied up in the long stock. Just because you are lazy or not skilled enough to put the cash into an interest bearing instrument is neither an excuse nor a benefit of a covered call.
In an IRA I am pretty sure most brokers would not let you put the cash security into an interest bearing instrument. When they say "cash-secured" I think they mean cash not say a bond. OE automatically takes the cash out of the "high interest" MM sweep account. Don't get me wrong, all Else being equal a NP is better than a CC. However, as my OE IRA example illustrates "all else" is not always equal. Don
What if you did this on a futures (ES) or even on a SSF? Then would it be wise to buy the future and sell an ITM covered call against it?
I am not very savvy on Futures and would like to start a thread on that some day. Anyway here is my unwashed opinion on your question, maybe someone can correct me if I am wrong: Because Futures pricing contains an interest component there should be no advantage over buying the raw stock. That is, the carry cost of stock is similar to the interest component of futures pricing so either way you are encountering an interest penalty. Again, my knowledge of futures is pretty superficial so if anyone sees a flaw in my answer please correct me. Don