Since covered calls and naked puts essentially have the same risk-reward profile, are there any advantages of writing naked puts instead of covered calls? Which is better? Or is it just a matter of preference? Short Answer : In general, writing naked puts allows you to leverage more positions and without paying margin interest than you can writing covered calls. Long Answer : It's true that writing naked puts essentially has the same risk-reward profile as writing covered calls. But there can still be important differences in the two strategies depending on how you define "naked put.
Selling a naked put or cash-secured put is the same as selling a covered call. They have identical profit and loss graphs if you use the same strikes and expiration dates. However, there are a few differences that may make naked puts more or less attractive than covered calls depending on your circumstances. A "naked put" is an uncovered put option that you have sold. It is "uncovered" or "naked" if you have not shorted an equivalent number of shares of the underlying stock. If the put option is assigned to you then you will have the shares put to you at a price equal to the strike price per share. The most profit you can make with a naked put is if the option expires worthless i.
August 6, pm. Income investing strategies that involve selling covered calls and naked puts are far less risky than many investors realize, seasoned trader Bryan Perry told me during a recent interview about how he helps subscribers of his Quick Income Trader service seize those opportunities. The sale of covered-call options is the most popular form of generating income from stocks that pay low dividends, he added. To tap that opportunity, Perry said his Quick Income Trader service is designed to recommend stocks to investors who can benefit from share-price increases, as well as through the selling of covered-call options to collect premium from the underlying stock. Rather than just rely on quarterly dividend payments that may produce a modest yield of 1.
Covered call writing is a low risk option strategy. If the underlying rises above the strike price the calls are assigned, you deliver the shares and exit with the best case scenario. Covered calls make money in a rising or flat market and because the premium received reduces the cost of the underlying shares, is less risky than an outright long position in the stock.