To do a covered call, you need to own 1000 shares of ATPG and then write 10 contracts on your holdings (numbers for example only).
This ties up a considerable amount of capital and does away with any leverage you might hope to exploit by trading options.
You get the exact same risk and profit profile by writing naked puts on ATPG.
You don't need to own the shares (which carries its own risk) and you can leverage more than twice as much (compared to covered calls).
People are scared of the term "naked put" but your downside risk is outlined as soon as you write them and you already know the profit amount as you are credited right away.
The worst that can happen is that you are put the stock at your option strike price, minus the premium you have already been awarded.
Assuming you want to own ATPG, this is not a problem.
The main downside to naked puts is that of opportunity cost.
If ATPG runs hard, you keep your premium but miss out on the run-up.
Naked puts are great for sideways markets, which is where most companies trade 95% of the time.
I use TD as well and am charged $29 for 10 contracts, $39 for 20, $49 for 30, etc. You need to look at the premium being offered, the time to expiry, and decide for yourself what is "worth it".
For me, on a <30 day trade if my fees are 5% or less I am happy.
Also consider if you plan to hold to expiry or cover early. If covering early, realize that you have double the commission.
Cheers,
S&P
[edit] Just read CC's response and agree that Thinkorswim is a great platform. A bit complicated at first but worth mastering.
TD has the platform in both its US and Canadian accounts. |
