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Short Call (Naked Call) Vs Covered Put (Married Put) Options Trading Strategy Comparison

Compare Short Call (Naked Call) and Covered Put (Married Put) options trading strategies. Find similarities and differences between Short Call (Naked Call) and Covered Put (Married Put) strategies. Find the best options trading strategy for your trading needs.

Short Call (Naked Call) Vs Covered Put (Married Put)

  Short Call (Naked Call) Covered Put (Married Put)
Short Call (Naked Call) Logo Covered Put (Married Put) Logo
About Strategy Short Call (or Naked Call) strategy involves the selling of the Call Options (or writing call option). In this strategy, a trader is Very Bearish in his market view and expects the price of the underlying asset to go down in near future. This strategy is highly risky with potential for unlimited losses and is generally preferred by experienced traders. The strategy involves taking a single position of selling a Call Option of any type i.e. ITM or OTM. These naked calls are also known as Out-Of-The-Money Naked Call and In-The-Money Naked Call based on the type you choose. This strategy has limited rewards (max profit is premium received) and unlimited loss potential. When the trader goes short on call, the trader sells a call option and e... Read More The Covered Put is a neutral to bearish market view and expects the price of the underlying to remain range bound or go down. In this strategy, while shorting shares (or futures), you also sell a Put Option (ATM or slight OTM) to cover for any unexpected rise in the price of the shares. This strategy is also known as Married Put strategy or writing covered put strategy. The risk is unlimited while the reward is limited in this strategy. How to use a Protective Call trading strategy? The usual Covered Put looks like as below for State Bank of India (SBI) Shares which are currently traded at Rs 275 (SBI Spot Price): Covered Put Orders - SBI Stock OrdersSBI Strike Price Sell Underlying SharesSell 100 SBI Shares ... Read More
Market View Bearish Bearish
Strategy Level Advance Advance
Options Type Call Put + Underlying
Number of Positions 1 2
Risk Profile Unlimited Unlimited
Reward Profile Limited Limited
Breakeven Point Strike Price of Short Call + Premium Received Futures Price + Premium Received

When and how to use Short Call (Naked Call) and Covered Put (Married Put)?

  Short Call (Naked Call) Covered Put (Married Put)
When to use?

It is an aggressive strategy and involves huge risks. It should be used only in case where trader is certain about the bearish market view on the underlying.

The Covered Put works well when the market is moderately Bearish

Market View Bearish

When you are expecting the price of the underlying or its volatility to only moderately increase.

Bearish

When you are expecting a moderate drop in the price and volatility of the underlying.

Action
  • Sell Call Option

Sell Underlying Sell OTM Put Option

Suppose SBI is trading at 300. You believe that the price will remain range bound or mildly drop. The covered put allows you to benefit from this market view. In this strategy, you sell the underlying and also sell a Put Option of the underlying and receive the premium. You will benefit from drop in prices of SBI, the Put Option will minimize your risks. If there is no change in price then you keep the premium received as profit.

Breakeven Point Strike Price of Short Call + Premium Received

Break even is achieved when the price of the underlying is equal to total of strike price and premium received.

Futures Price + Premium Received

The break-even point is achieved when the price of the underlying is equal to the total of the sale price of underlying and premium received.

Compare Risks and Rewards (Short Call (Naked Call) Vs Covered Put (Married Put))

  Short Call (Naked Call) Covered Put (Married Put)
Risks Unlimited

There risk is unlimited and depend on how high the price of the underlying moves.

Unlimited

The Maximum Loss is Unlimited as the price of the underlying can theoretically go up to any extent.

Loss = Price of Underlying - Sale Price of Underlying - Premium Received

Rewards Limited

The profit is limited to the premium received.

Limited

The maximum profit is limited to the premiums received. The profit happens when the price of the underlying moves above strike price of Short Put.

Maximum Profit Scenario

When underline asset goes down and option not exercised.

  • Max Profit = Premium Received
  • Max Profit Achieved When Price of Underlying <= Strike Price of Short Call

Underlying goes down and Options exercised

Maximum Loss Scenario

When underline asset goes up and option exercised.

  • Maximum Loss = Unlimited
  • Loss Occurs When Price of Underlying > Strike Price of Short Call + Premium Received
  • Loss = Price of Underlying - Strike Price of Short Call - Premium Received

Underlying goes up and Options exercised

Pros & Cons or Short Call (Naked Call) and Covered Put (Married Put)

  Short Call (Naked Call) Covered Put (Married Put)
Advantages

This strategy allows you to profit from falling prices in the underlying asset.

Its an income generation strategy in a neutral or Bearish market. Also allows you to benefit from fall in prices, range bound movements or mild increase.

Disadvantage

There's unlimited risk on the upside as you are selling Option without holding the underlying.

Rewards are limited to premium received only.

The risks can be huge if the prices increases steeply.

Simillar Strategies Covered Put, Covered Calls, Bear Call Spread Bear Put Spread, Bear Call Spread







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