cover calls-regular income from the stock market?

[vince]

Hi ,

Frankly speaking a covered call is nothing but a short naked put. The risk and pay profile are identical the only diference being you pay double the brokerage for a covered call, hence a naked put would be much superior.

 

[ivanboesky]

True Vince, a covered call is a synthetically created short put. But then a covered call is meant for those people who hold onto stocks that they feel are fundamentally sound, but want to make a little extra on the side. They do that by selling far out of the money calls to bring in some premium to reduce their holding cost. In India, the settlement is in cash, so the stock cannot be called away, thus creating a tax liability.
As for brokerage, on the stock its only one time. You can continuously sell calls, month after month, so you pay brokerage only on that. Same as for selling a put short.

 

[vince]

Hi Ivanboesky,
I agree , It would be an excellent strategy in a sideways to a mildly bearish market, but in the roaring snorter that we have had it would only limit your gains. However each one to his own I guess. I being an out and out futures trader have a completely different perspective.
Always a pleasure talking to someone knowledgable.

 

[sup_ida]

ivanboesky,

Hi,friend im still a learner.May be im wrong in my view but till now i didnt incur any loss in writing call option.
1)if market moves downwards premium received by writing OTM call will be my stoploss for my long postion in Futures lot.
2)I select scrips based on technicals like RSI MACD MAVG
for example

I went short in maruti CA 780 feb @ 15 when maruti's cmp was at 752
But i didnt buy a Future . If maruti moves up and reaches 780 ,then only i will buy a Futures lot at 780. Actually i covered my short postion at 9 rupees gap for a profit of 7200.

Moreover im satisfied with 4%-5% return.

bye
babu

 

[ivanboesky]

Yup Vince,
To each his own!!
Sup_ida, thats quite a risky game you're playing out there... but then if you have the stomach and the funds for it, why not!

 

[hsarora47]

dear friends,
covered cals are written when you own the underlying and sell the call option.
following points must be noted:
1. the stock should be either trending up or in trading range.
2. advantage of trading stock is that you can the call will expire useless and you can again sell the option.
3. please use technicals to see that the stock doesnt go into a tail spin as the downside in this case is unlimited.
4. in case the stock goes into a deep correction, do take corrective action immediately by squaring off your position even at a slight loss.

hsarora47

 

[swagat86]

HI FRNDS, im still to start off wid Fno. This one is a good startegy i suppose.
i hav somethin in my mind.pls correct me if im wrong
CONTRACT : OPT-ACC-27-Jul-2006-800-CA
OPT-ACC-27-Jul-2006-800-PA
Spot Price : 815.45
.this abt today.CAnt i go long in the cash market@800and again short in the cash market @800? i also sell both the above contracts.
+tives
1) so in this case my premium will be double.
2)risk will be minimised.

-ves
1) if stock closes @ 800 exact
2) after squaring off the positions in cash market there would be a time lag bfore the market closes. which would be risky.

how is it?? pls hlp

 

[vince]

Hi Swagat,

Although I have not properly understood your question, I am attempting to analyse this trade for you.

You want to sell a straddle. Your risk begins at strike + premium.

The call option you want to sell is in the money and liable for excercise.

I dont see how you can be both long and short in the cash market at the same time.You will have to square off one position before taking the other.It would have to be in lot sizes of acc.

Stock closing at 800 on expiry would be +ve since you have no outflow with regards to short options.

All the best

 

[swagat86]

Hi Swagat,

Although I have not properly understood your question, I am attempting to analyse this trade for you.

You want to sell a straddle. Your risk begins at strike + premium.

The call option you want to sell is in the money and liable for excercise.

I dont see how you can be both long and short in the cash market at the same time.You will have to square off one position before taking the other.It would have to be in lot sizes of acc.

Stock closing at 800 on expiry would be +ve since you have no outflow with regards to short options.

All the best

I meant intraday. as i said before im not an expert. but cant we sell call n puts intraday? and simultaneously go long and short in the cash market @ 800. As per i know the difference between Strike price and the spot price is payable. Now in the above xample if the stock closes below the Rs 800 the gains from the shorts in the cash market will take care of the amt payable on puts sold. Premium is urs. And the longs in the cash market would be mitigated with the double premium. that could act as a SL. This strategy would work best with stocks with low volatility. Is this possible vince? thanks for0 replyin.

 

[Agilent]

I meant intraday. as i said before im not an expert. but cant we sell call n puts intraday? and simultaneously go long and short in the cash market @ 800. As per i know the difference between Strike price and the spot price is payable. Now in the above xample if the stock closes below the Rs 800 the gains from the shorts in the cash market will take care of the amt payable on puts sold. Premium is urs. And the longs in the cash market would be mitigated with the double premium. that could act as a SL. This strategy would work best with stocks with low volatility. Is this possible vince? thanks for0 replyin.

Can u elaborate ? If you mean what I think you mean (see red) , that's incorrect.

Am I right , Vince ?

AGILENT