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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: Mathemagician who wrote (1024)	6/11/2001 7:02:23 PM
From: FaultLine	Read Replies (3) of 5205

However, I'd like to make an addition: With buy/writes, you buy common now. With short puts, you buy it later and for less. Given the choice, I still don't understand why anyone would buy/write when they can sell a put instead. It is tempting to agree with you but there is (at least) one significant difference, there is no mechanism when selling a put to obtain return from an upswing in the underlying stock to the strike price. The previously OTM contract is now exercised thus yielding the maximum possible return of premium + (strike - basis) - commission. This run-up to the strike, if it occurs, contributes significantly to the total return on the position. -dfl

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