Comments on: 5 Reasons Naked Put Selling Beats Covered Call Selling

By: Alex Fotopoulos

Alex Fotopoulos — Tue, 18 Dec 2007 14:06:01 +0000

Zach, I might have to write a version 2 of this post with all the valuable feedback I’ve been given. The CC advantage with dividends might only come down to the lower tax paid on dividends than on option income. You are generally right about dividends being priced in.

By: Zach

Zach — Tue, 18 Dec 2007 02:43:49 +0000

Part of your analysis is correct. The tax implications are important if you are trading in a taxable account. And the slippage on entering two transactions does add another layer of risk.

But the points accounting for dividends and interest are not correct. Option prices are efficient and account for not only volatility and time decay premium but also for interest opportunity cost and most definitely dividend events.

I appreciate your thought pattern here, but the market is more efficient than you give it credit for.

By: Alex Fotopoulos

Alex Fotopoulos — Mon, 19 Nov 2007 15:14:08 +0000

Tony, you didn’t leave any contact info. You can use one of the spreadsheets in my “Excel Spreadsheets” section. You’ll need to update the formula for only using a leap as the long position vs the full stock ownership as I have it set up.

By: Tony G

Tony G — Mon, 19 Nov 2007 14:24:54 +0000

I am trying to figure what the returns will be if i am using a leap to write short term monthly calls. If any one know some articles or blogs drop me a line. Thanks

By: Alex Fotopoulos

Alex Fotopoulos — Tue, 06 Nov 2007 14:16:09 +0000

3. Good point on owning the leap instead of the underlying stock. That still requires taking money from your account to make the transaction as opposed to a naked put that only requires you have a small amount available to cover if assigned.
4. The money used to buy the underlying stock for a covered call can be placed in a money market to draw interest. I have $40k of my supporting cash in a money market right now. I’m getting 5% interest while it’s there and available if the option is assigned. Since I try to run at 2x underlying stock value, using naked puts allows me to not pay interest for margin as I would with buying a stock and then selling a covered call.

Don’t get me totally wrong though. I still sell covered calls sometimes, I just like to open the position with a naked put.

By: mule65

mule65 — Tue, 06 Nov 2007 14:10:10 +0000

3. False — You can own a LEAP instead.
4. False — Your money is tied up either way.

By: Stock-Options » Blog Archives » Je sais pas choisir

Stock-Options » Blog Archives » Je sais pas choisir — Tue, 23 Oct 2007 20:48:28 +0000

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By: Link Love Friday | A Trade A Day

Link Love Friday | A Trade A Day — Fri, 19 Oct 2007 08:57:32 +0000

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