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Strategies & Market Trends : P&S and STO Death Blow's
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To: mishedlo who wrote (22744)1/7/2003 11:16:51 PM
From: Mike M  Read Replies (1) of 30712
 
<<Covered calls is 100% identical to selling naked puts.>>

That is not true Mish. Selling naked puts takes a large and unprotected risk and is the speculation all by itself. Selling covered calls assumes an existing long stock position that you have no intention of selling. As such it has but two risks which are: (1)you may be forced out of your long position if the stock rises above the strike price (effectively putting a limit on your upside) or (2)the stock investment may fall in value. If number two occurs you can close your call option (or not) and if necessary sell your stock. The covered call at least mitigates the loss from the stock. In either event the option position for the seller is pure gain.

Selling covered calls is most appropriate if you expect share weakness or sideways movement. Selling naked puts assumes a stock that doesn't drop and may require additional margin if the stock moves against you.
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