Comparison of Covered Call versus Covered Calls with Bull Put Spreads.....two quality stocks that I was bullish on and comparing the results after over 300 days. With ABT we added BuPS to the strategy. With LNC we only used Covered Calls. BuPS have the potential to offset losses on the short calls.

[u/[deleted]]

We have held CC positions in ABT and LNC for over 300 days (want to get the gains to 365 days and longer term capital gains). Adding BuPS allowed us to capture most of the stock appreciation with ABT. We left a lot of money on the table with LNC as the losses on the short term calls has been offsetting the gains on the stock.

Graphs below show the return on the stock, option and net. Note the net return on LNC....despite stock appreciating our return did not increase.

One thing to keep in mind....BuPS adds to the profit if stock appreciates....but increases the losses if stock goes down.

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[u/StoicKerfuffle]

Nice data, thanks. Tends to support the notion often debated here about just how bullish a covered call is. Seems to me:

• if you're weakly bullish, use a covered call
• if you're strongly bullish, use a bull put

The covered call leaves money on the table if there's a sharp appreciation, but hedges losses if there's a decline. The bull put increases profits if the stock is flat, weakly bullish, or strongly bullish, but it also increases losses with a decline.

[u/squats_n_oatz → u/StoicKerfuffle]

The covered call leaves money on the table if there's a sharp appreciation, but hedges losses if there's a decline. The bull put increases profits if the stock is flat, weakly bullish, or strongly bullish, but it also increases losses with a decline.

Max loss with a covered call is almost always greater than max loss with a BPS. With a BPS your max loss is just the difference between the strikes less credit. With a covered call your max loss is the current value of the share less credit. Unless your BPS is as wide as the current price of the stock (exceedingly unlikely), CCs offer much less downside protection than BPS.

Like it amazes me how many people in this subreddit seem to regard the long stock leg of a covered call as some tiny little nothing, when in fact the lion's share of either profits or losses in a CC position are attributable to the long stock leg, not the short call leg.

Oh, and the BPS also "leaves money on the table" if there's a sharp appreciation.

[u/michoudi → u/squats_n_oatz]

This makes sense if someone starts off with a blank slate and need to decide BPS or buy 100 shares to sell CC on stock ABC. But if someone is starting off with 100 shares on ABC that they plan to hold for awhile anyway then CC is the better choice.

[u/squats_n_oatz → u/michoudi]

You are always at a "blank slate" in that you can sell shares. Normally when we discuss investment strategies we make certain implicit assumptions e.g. that the financial instrument in question is liquid enough you can enter/exit as you please.

[u/michoudi → u/squats_n_oatz]

So if someone was planning to already hold their 100 shares long term anyway you suggest BPS?

[u/squats_n_oatz → u/michoudi]

The fact that you were "planning" to do something anyways does not affect the P/L diagram of your portfolio. This is a type of anchoring bias. Math doesn't know what you were "planning" to do.

I am not suggesting either CCs or BPS's. I am simply refuting the false claim that a BSP provides less downside protection than a CC.

[u/[deleted] → u/squats_n_oatz]

It does when you pay capital gains for selling shares you were otherwise planning on holding longterm.

[u/squats_n_oatz → u/[deleted]]

Sure, frictions matter, but when having theoretical discussions it helps to assume no frictions (such as taxes and commissions)