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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Jerome who wrote (4467)10/3/2006 4:32:56 PM
From: Bridge Player  Read Replies (1) of 5205
 
Zelek said, in his original post:

<< What about writing a covered call and then selling the stock short to protect against downside can you do this>>

I said:

"Would that not essentially be the same as writing a naked (uncovered) short call, with no position in the underlying stock?"

I believe that to be a correct statement. If you sell the stock short against the box (assuming that your particular broker lets you do that), then you have both a long and short position, e.g. neutral on the stock, and the short call is essentially naked. Same thing if you sell the stock short in a different account.....neutral the stock, short an uncovered call.

And btw, I fully understand there would be no useful reason to do this, possibly aside from tax reasons.

You said:

<<When you write a covered call you are short the stock....and you can do nothing with that stock until you unwind that position.>>

If your account is authorized for naked options writing, and you have sufficient margin, then that would not necessarily be true. I have more than once sold a long stock position while a short call, originally written as covered, had not yet expired. Interactive brokers account. If the stock is sufficiently away from the strike and little time remains until expiration, there is little risk in this procedure.
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