<p>With covered calls, you need to own the stock. That is right,</p>
<p>But when putting on a position, the choice does not have to be buying stock or buying the same amount of shares and then selling covered calls. It is safer to buy stock and sell covered calls than buying a similar amount of shares of stock.</p>
<p>But…</p>
<p>I could choose to do the covered write bigger than just buying shares.</p>
<p>I could choose to buy 500 shares of stock or buy 2000 shares of stock and sell 20 in the money calls for example.</p>
<p>I am not saying others should do the above but I do sometimes do the above. </p>
<p>I typically do not like to write covered calls as I’ve been screwed doing this either by the stock shooting up which required me to roll the call up and out or the stock dropping like a rock during which I have to unload the call before I can get rid of the stock. For me it has been better to keep options and stocks separate. I buy stocks that have good dividends and everything else is options.</p>
<p>There are downside to everything even for covered calls. But I’m happy to have that downside and generate consistent return exceed the S&P 500 index. Heck even the average hedge fund does not beat S&P 500 return. As recently I read hedge fund average return this year is 1% vs 6.5% of S&P 500.</p>
<p>There is less downside buying a call spread than a covered call. The most that can be lost is the cost of the spread. I had this argument on SA over an extended period of time. There are loads of dividend “investors” there who argue that they will keep their dividend “aristocrats” forever LOL. I pointed out that we are gambling to which their reply was no they are “investing” I even had to copy the definition of gambling from Webster’s which is the possibility of losing money which apparently was not their definition. My potential loss with the call spread is much less than with a covered call or straight stock, I have more ways of getting out if the trade goes bad. If it goes well, I can always roll it up and reduce my financial exposure to the market etc. Since I am putting less money for the same performance as the market, I have money left over for protection, to sell otm puts, buy weekly put spreads and pay for them by selling further otm spreads etc. This is why I rarely buy stock. Of course the downside is the tax treatment.</p>
<p>What’s otm? Sorry I don’t know the acronym.
My stocks often called when its’ near dividend time. I’m sure when I retire I will explore various ways to reduce risk and get the same return. Right now, I think what I’m doing is pretty simple minded.</p>
<p>So according to that definition, I sell otm puts. But if the puts have less money left. I close it. I did with HPQ multiple times, I rode it up since it was either $13 or $20, I can’t remember the exact. Finally let go at $35. But it went up to $37. Oh well.</p>
<p>dstark: I’m a bit surprised that you were not assigned on the call part of that straddle sinceI think those options trade after 4 and it was the required .01 above the strike.</p>
<p>I disagree on your assessment of the put and covered call:</p>
<p>If I buy a stock at 100 and sell a call for 10 and the stock drops to 90, I’m at breakeven.
If I sell a put for 10 when the stock is 100 and it drops to 90.01, I made 10, if it drops to 89.99 and I don’t roll it out but get assigned, I still made 10 but I own the stock at 90 unlike the covered call case where I’ve made nothing. My breakeven is 80 in the put case.</p>
<p>On the other hand, if the stock goes above 100, with the put case, I only make 10 while with the covered call case I can make a maximum of 20 at 110.</p>
<p>Since I’m more concerned about income and preserving capital, for me I don’t really care about the stock going up beyond the 100, I just care it doesn’t go down too much such as below 90.</p>
<p>I would never do what you are saying is the same risk. If the stock is at 100, I would never sell a 100 put or call. In both cases I would sell an otm call or put not atm or itm. Why would I want to sell a call at the current price of the stock? For protection? As you’re aware, there are better ways of protecting a stock position than covered calls.</p>
<p>How is my math wrong? I don’t see any benefit for selling a call or put at the price of the stock. The only time I would ever do this is in the following example: something like a 1/17 198 - 199 spy call spread that costs .69 with a potential 45% profit.</p>