Question

Buying a share of Lotus’s stock at $55 per share while simultaneously writing (selling) a call option with an exercise price of$55 per share is called a "covered call" (also a "buy-write") investment strategy. What is the relationship between covered call positions and selling put options? Do the quoted put and call option prices appear to be consistent with this relationship?

Answer 1

Answer and Explanation:

A. Similarities

Both covered call positions and selling put options strategies are not good reason been that they both are banking on the stock price to go up.

Differences

In a covered call, loss is unlimited on the downside and when you write a put option, the loss will be limited to the difference that exist between the exercise price and the lowest stock price ($0) and the Premiums paid are different which will in turn can tend to vary from one seller to another seller.

B. The prices of puts and calls appear to be consistent with the relationship and for the same strike price, the level of profit and loss for calls and puts seems to be unequal.