Covered Calls vs. Selling Puts

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Keynes's picture
User offline. Last seen 8 years 6 days ago. Offline
Joined: 02/27/2009

There are certain issues that I'm comfortable with owning in the long term, however I'm not overly optimistic about their short term odds. I don't really feel like the economy has made a bottom yet and everything is likely to be pulled down with it. As such I've been going long the positions and selling covered calls, however I'm always asked why I don't just sell puts. The only real reason is because I can take the long position at a different price than the price at which I sell the call.

My logic on this is that my return on the short term gain (if I get called out) is a bit higher than if I just sell the put. Plus I get to take in any dividends that come during the time period. Some will argue that I could be leveraging my money more right now by selling the put, but if you're not keeping enough cash on hand for the case in which you get it put to you, you're a fool. So ultimately I feel like there's not a ton of difference. I have other uses for selling puts in this market, however if I'm trying to establish a new position I generally sell a covered call.

Any feedback on my logic?