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Strategies & Market Trends : Contrarian Investing
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From: pcyhuang10/18/2006 11:22:49 PM
   of 4080
 
Options Strategy


"what are your thoughts on merits of covered calls vs. writing puts."

The risk and reward of options buying/writing may be expressed as:

Long Stock = long call + short put

(Note that the risk/reward on both sides of the equation are equal)

The above equation may also be written as:

short put = long stock + short call, or

short stock = long put + short call

(The equation shows that writing put is the same as covered write of call options while owning the stock. Shorting the stock is the same as long the put and short the call.

The advantage of selling put against cash over the buying of stock and selling a covered call is that: 1. You pay only ONE set of commissions in selling the put, and 2. You save on the margin required in selling the put than the amount required in doing a covered write.

To see more examples of put writing, please visit the Full-Disclosure Trading Board for put writing on stocks mentioned on the Board of Contrarian Investing.

pcyhuang
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