Writing Covered Puts

This is one of my favorite strategies: short the stock; sell puts against it.

(Yes, I'm aware that this is the synthetic equivalent of writing naked calls. But the Broker qualification criteria is different, and thus easier to qualify.)

Bob

 

can you somehow write a covered put on futures index options?

 

If you sell 2 atm puts for every 100 shares short, it's a synthetic short straddle, one of my favorite trades.

 

Osh: Sorry I don't know the answer to your question.

Smilling: Many people, myself included, don't qualify to write that second Put without the short share backup. Nevertheless, your posting intrigues me. Would the risk graph somehow resemble a calendar spread?

Thanks so much to both for posting.

Bob

 

Change brokers. Who are you using?

 

Just 21, thanks for your posting. I use Schwab. Actually, I commend them on their qualification rules. I have no problem with the fact that they don't permit me to write naked options.

Thanks again,
Bob

 

Just to clear my mind on Schwab. They let you do synthetic short calls but not natural. They don't let you sell puts (naked). Do they let you do covered calls?...nevermind, I think I know the answer.

 

It would look SOMEWHAT like a long calendar spread, but there are some differences. Both are long theta and short gamma, but the calendar is long vol, whereas the straddle is short vol.

 

Cohenmichaela, the rule isn't all that surprising when one stops to realize that the rules are written by lawyers not options traders. But, ya know what? Even though I know exactly where you're coming from, I also feel more comfortable shorting the stocks and writing puts against them, than I would feel simply shorting calls.

Perhaps it's because I have more flexibility to screw around. For example if I wanted to do a short 450 or 500 and sell 4 Puts, it's easily accomplished. Same regarding my propensity to occasionally pick up some calls to satisfy a temporary desire for some positive deltas.

Finally, there's the over riding consideration of the Implied Volatility. When faced with the ongoing question of whether to buy calls or write puts, no doubt you and I, as experienced options traders take a look at the present IV situation.

Anyway, your posting is very much appreciated. Thanks.

Bob

 

Bob, before I go on another assumption-spree, could you explain what you mean by that latter question? As I read it you don't know what a straddle is. I find that hard to imagine, it's the most basic (and to me most important) of all options spreads.

Ursa..