No. of Recommendations: 0
The risk profile and max loss for the two positions are the same - cost of the stock minus commission received, but people use different strike prices for the covered call vs. naked put because generally you want to sell the closest OTM call or put. In almost all cases the closest OTM call is at a different SP than the closest OTM put.

I generally choose the first OTM strike price for the call -- BECAUSE it means I can earn more profit if the stock price goes up. An OTM put won't do that -- your only profit is from the option premium.

And, in general, I would expect the stock price to go up, because I would only do a CC/CSP on a company I felt is a good one.

So I'd rather do the ITM put for the same reason I did the OTM call. It's just that the put gives me the extra money ahead of time, before the (hoped for) price increase.

Typically, I put a $0.03 limit order in to buy back the call/put, since there would be no time value left in the option and it would signal it's time to go to different strike price/expiration date.
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.