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Strategies & Market Trends : Options
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To: taxman who wrote (1355)1/20/2000 2:35:00 AM
From: cthruu  Read Replies (2) of 8096
 
Hi Taxman:

There is a difference.

With covered call you are tying up $9400 ( for 100 shares minus proceeds) and with short puts you only need $2500 in margin equity (30% minus the proceeds)

If the stock tanks, you lose big in order to roll out of the covered call position. With short put, you can create a spread and cover your position. I believe short put carries lesser risk than covered calls.

Both these positions limit your upside. If I am bullish on the stock, I'd rather invest $600 and simply buy a call. My risk is only $600 for one contract which I invested. For investment of $2500 I can buy 4 contracts, have 4 times as much leverage and have money left over for the commissions.

Regards:

GP
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