Tuesday, January 27th, 2015

AMZN Free Trade – Why not covered calls?

You have to understand that selling puts= Covered calls (the same strategy).People would rather buy stock ( which costs a lot) and than sell a call against it and they feel comfortable with it. But if you sold a naked put they feel ” unprotected”. The only risk is that naked put can be assigned ultimately but than one has bought the stock cheaper and get to keep the premiums.

I have yet to be assigned a put this year..These put sale are designed on fundamentally good stocks and strong movers. The stocks we deal with are the cream of the stocks, the best out there. They are not cheap stocks. So if you own one of them is that so bad ?


Here is the trade we are doing in our members area today:

Sell 3 AMZN 165 January puts = $ 2.20

The margin is $9800 and if AMZN stays above 165 till January expiration we keep the premiums which in this case would be $ 690 minus commissions.

I think if you are trying to buy AMZN at 165 it would be a lofty goal in next 30 days and therefore these puts are sold to gather time premiums. AMZN is at 177.78 as of this writing.

Some people prefer to use put spreads. That involves buying a lower strike put such as January 155 s which costs says $1 so now the max gains can $2.30-1.00 = 1.30 x 300 = 390 minus commissions. These put spreads limit risk, limit margins, and they limit profits and they are harder to get in get out and cost more commissions. They are a good strategy and we have one such trade on PCLN right now.


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