Using index ETFs for delta

when you are writing a covered call, your downside risk comes from the stock declining more than the premium can offset. Since you are delta neutral on the stock, you can just sell the call and get assigned - or not. I don't understand how this isn't a "riskless" way to collect call premium

 

The long and short ETFs offset each other, which means that you end up with a naked short call. How's that risk free?

 

repeat: Your call has delta! You are delta neutral BEFORE you write but not after.

 

but you still own both so you can meet the assignment of one and then sell the other, and start over

 

Ok, I seem to be wrong but still don't completely understand why. When you write the call you receiv the premium, you don't care what the price does after that?

 

It could be an IRA account.

 

I am european, no idea how that effects things.

 

you have got a lot's of things mixed up in your head. If you think in terms of delta it's easy to see you do care. This 'covered call' thinking doesn't really help you ... it's not a covered call.

 

Retirement accounts (IRAs, etc) are cash accounts, no margin.

 

Bingo, MTE nailed it head on. You're underlyings offset each other so all you've done is write a naked call. Your broker will look at that position and ask why you bothered with the underlyings and just margin you on the naked call.

Yes you keep the premium but you will lose money as the ETF rallies. The two ETF's offset each other.