Some brokers like Interactive Brokers do not charge for assignment. However, it may surprise many investors that the same benefits can be had without increasing risk by selling short or naked puts. A "naked put" is an uncovered put option that you have sold. If you don't own the stock naked puts you won't get the dividends. You are willing to have shares put to you at the strike, meaning you are confident that even with market value below that strike, you think it will come back. Technically, the put premium can be applied against that requirement. You then immediately sell call options at a strike price above your purchase price for further income.
Selling Puts vs. Covered Calls – Which Is Better?
If you need maximum control over your risk, then a strategy using naked puts may be the best choice. My go-to explanation for why someone would do a covered call versus a naked put is this: There's nothing wrong with that but it's the same as starting with a covered call, have it expire out of the money, and then writing another covered call at the same strike. The BUYER of a put bets that the underlying stock will drop below the exercise price before the expiration date. This is because you can write can write a greater number of puts using margin. Also, when choosing between the two strategies, you should factor in the commissions that you would need to pay to close out your short call at expiration if the stock is above the strike. If you don't own the stock naked puts you won't get the dividends.
Options Theory: When Covered Calls Beat Naked Puts | Tackle Trading
Which strategy is right for you depends on your trading objectives and market outlook. A put is a contract to sell shares of stock at a certain price, the strike price. I use both ways to structure option trades on a regular basis. Article printed from InvestorPlace Media, https: However, brokers will allow covered calls in all accounts.
Description: The margin requirements are often very high for this strategy as well due to the propensity for open-ended losses, and the investor may be forced to purchase shares on the open market prior to expiration if margin thresholds are breached. Express Scripts needs to rise by 2. Is there any difference between a covered call buying a stock, selling call against the shares and selling a naked put? Leverage and Diversification Writing uncovered short puts can also allow the investor greater leverage and diversification. You should have recognized the melt-up and chased like all the other money-seeking monkeys.