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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: tyc:> who wrote (12101)	12/23/1999 8:28:00 PM
From: Tom K.	Respond to of 14162

"Doesn't a short put and a covered call have the same profit profile ? Aren't they the same thing ? They have the same risk profile, but are very different in use and behavior. For example, to do a CC on DELL when it is at $50 requires an outlay of $2500 (50% margin) to buy the stock to get the $100 CC premium. To do a comparable PUT, would require only 20% of the value ($1000) held as collateral which you also get paid interest on. So when you assess your leverage potential as well as the interest and the return potential, the actual risk is quite different even though the textbook profile is the same as a CC. When you assess how the options behave as well as the techniques for repair you will find even more differences. I started with CC's and shifted to PUTs once I learned the differences. Tom