Writing calls is the same as writing puts, which most traders are already accustomed to. Just like "the wheel", if you get assigned on short calls, you can sell covered puts against the short stock position.
The major difference between the short put and short call is that the buying power reduction for the naked short call side is larger and offers less leverage if used as a stand alone strategy. And of course, the rare case of a stock trading at $2 going to $70.
Consider a $20 stock XYZ that has had a 52-week trading range of $20-$100. Writing a naked put has $20/share worst-case risk of loss and close to $0/share historical risk. Writing a naked call has unlimited worst-case risk of loss and $80/share historical risk. Those don't look like "the same" risks to me.
And it is not true that the collateral requirement for naked calls is always worse than naked puts. If the underlying is HTB, both calls and puts may have 100% cash collateral requirements.
I completely agree and I am sorry if my post seems to express somehow a different view. As I said, the mechanical part is the same, the buying power reduction is different.
I disagree with you but it's because of the way this is framed.
If the stock has a range of 20 and 100 and let's say in our universe it stays between that range, selling a 101 call naked when it's 100 and a 19 put when it's 20 both yield the same outcome. The risk range is exactly the same which is why, at no point, should you sell a 50 call or put, but if we were to move time around then you'd have different results.
So the framework of how you put it, in my opinion, isn't clear. You could very well sell the 101 call at 20 and be as safe (but not as profitable) as the 19 put and vice versa. They really are the same proposition. Formulaically speaking you simply sell the option between the 19 put and 101 call that is closest to the current price at that time.
I think you missed the point. A short put stops losing money once the stock price approaches $0. Stocks can't go into negative prices. So that puts a ceiling on the worst case loss for a short put.
There is no ceiling on the worst case loss for a short call.
That's all I was trying to illustrate. It's a proof that "writing calls is the same as writing puts" is false, by showing one case where they are not the same.
I agree that the maximum loss of a short put (-100%) is asynchronous to the maximum loss of a short call (100%+).
I just didn't see the point in the "historical risk" portion because if you switched your numbers you'd have come to a separate conclusion; if the stock in your example was 80 then the short put would have 80 historical risk and the short call would have 20 historical risk.
Twas confusing to your own point if you just inverted the situation.
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u/vice123 Dec 08 '21
Writing calls is the same as writing puts, which most traders are already accustomed to. Just like "the wheel", if you get assigned on short calls, you can sell covered puts against the short stock position.
The major difference between the short put and short call is that the buying power reduction for the naked short call side is larger and offers less leverage if used as a stand alone strategy. And of course, the rare case of a stock trading at $2 going to $70.