Plus, if you're trying to hedge your 100 delta common with a positive delta put, you will never get it right over the life of the long common. Do you know why....? There's friction everywhere. "There's a new friction in town and his name is Reggie Hammond!!" Grasshoppa, when you can grab the gamma from the pricing model you may leave.....
You should do the one which gives the highest P&L. Spreads between bids and ask can vary, do the math. Also, Some brokerages require a higher minimum to sell naked puts, and, no we aren't going to discuss how dumb this is, it is a reality.
Yes, do the Math: $1 + $1 = $2 IMHO the point is not to switch from covered calls to naked puts to save one Dollar, but to choose a low priced broker. I do not want to disavow that there are reasons for selling naked puts, but for stategies like Mispe's the commissions are certainly no sufficient reason.
Page 37 of "Options as a strategic investment" by L. McMillan The Total Return Concept of Covered Writing. Is anyone familiar with this concept? It seems to make sense. It looks like a lot of tedious work but I would like to hear from the experts as to the flaws.
I hope you can make more than 20% a year. I read this article yesterday http://www.ivolatility.com/news/Volatility_to_work.pdf describing how when trading covered calls you want to look for a big difference between inplied and historical volatility. I think you should be able to make 5-10% a month if your stock doesn't decline in value.
Hardrock and Metoox are exactly right. There is the theory that using stocks that are beaten down in this market and are fairly low priced might work. You can still lose 100% of your investment though. Just put a covered call and a naked put on a option risk graph and you will see that they are identical in risk. Even thinkorswim brokerage has on their witicism window that covered call and naked puts are the same. They also flash the comment "Don't get caught naked between spread legs."
Take a look at UAL 2.50 calls expiring 15th Dec. They owe $375 million to the banks due 16th Dec (saturday). The stock is trading at 3.61 and the options are 1.50 bid! So if they don't go bust you can make 0.39 and if they do you lose 2.10. Anyone fancy that trade?
For that reason I don't consider covered call only ( as you can see with my first post). Being long the stock is a very high potential risk for the small reward of the short call premium. (Take THC for exemple, ...strong buy rated stock by most of the analysts in a defensive sector !!! A short call is no help in this case) I have a married put for each of my stocks with a long term strike 6 or 12 month. The cost of this put is more than offset by the premium collected on the short call (with one month strike) during this time.