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Strategies & Market Trends : P&S and STO Death Blow's
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To: Mike M who wrote (22760)1/8/2003 12:30:00 AM
From: mishedlo  Read Replies (1) of 30712
 
Selling covered calls has the identical risk reward scenario of selling naked puts.

This is an undeniable fact.
Too bad INTC is not precisely at 17.5 so you could see it easily.
But it is close enough.

You own 1000 shares of INTC at 17.5
You write the covered call. You collect about 60 cents.
(curreent bid ask .55 by .65).
Your risk, should INTC fall to zero tomorrow is 16.90

Instead you write a naked put.
You collect 60 cents.
Your risk should INTC fall to zero is 16.90.
Exact same difference.

Current bid ask on the put is actually .70 by .80 but INTC is also currently slightly ITM on thst strike 17.5 put. You have to pay extra premium for that ITM amt. You got slightly less for the call cause intc was slightly less than 17.50.

Do the math and you will see there is no difference. Give or take a dime you will be risking the exact same amt of money right now, writing naked puts on INTC at 17.5 vs writing covered calls.

Regardless of price, regardless of stock, there is no difference in risk reward scenario of writing covered calls vs selling naked puts.

CBOE will tell you there is no difference in risk reward.
Quite simply this is not a debatable point.

In the example above your risk on INTC is 17.5 minus the premium received for the covered call or naked put. No difference. About 16.80-16.90 if INTC was exactly at 17.50 right now.

M
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