Jason,
Thanks for your detailed response. All I can add is that, assuming one had written calls vs. puts equal distances out of the money, the premiums, at least on AOL, are about the same (haven't checked in a while but they were). However, if you had the stock short as well, when writing the out of the money puts, you'd also gain the distance between your short price and the put strike, should the stock retrace. There is no such additional gain when the stock falls when holding short, naked calls, plus there is no upside cushion at all, should the position go against you.
More to the point, most people here (including me) can't write naked anything -- brokers won't go for it, though I haven't tried to run the paperwork through for that level of options trading in a while.
I guess you'd come out a little better if the stock rose axactly to the call's strike at expiration vs. the covered put position, depending on how far out of the money the options were, but the expectation in the first place is the the stock would fall, hence I believe the covered put position is superior for playing the downside.
But, you're the pro, and I defer to your wisdom and professional experience.
Thanks again! |
