How to Trade a Synthetic Covered Call and Save 60%+ on Buying Power π‘
Buying 100 shares for a covered call ties up too much cash? πΈ
What if I told you thereβs a way to get the same risk/reward with 60%+ less capital? π€―
Enter:
The Synthetic Covered Call ππ»π§΅ x.com
Buying 100 shares for a covered call ties up too much cash? πΈ
What if I told you thereβs a way to get the same risk/reward with 60%+ less capital? π€―
Enter:
The Synthetic Covered Call ππ»π§΅ x.com
1. What is a Synthetic Covered
Call?
Instead of buying shares + selling a call, you sell an ITM (in-the-money) put.
This gives you:
β Same risk/reward as a covered
call
β Fraction of the buying power
used
Letβs use an example β¬οΈ
Call?
Instead of buying shares + selling a call, you sell an ITM (in-the-money) put.
This gives you:
β Same risk/reward as a covered
call
β Fraction of the buying power
used
Letβs use an example β¬οΈ
2. Example
π Stock: $XYZ at $50
Covered Call:
β’ Buy 100 shares @ $50 = $5,000
β’ Sell $55 call = $2 premium
π° Max profit = $700
Synthetic Covered Call:
β’ Sell $55 ITM put = $7 premium
π° Max profit = $700
Capital required = ~$1,750
π Stock: $XYZ at $50
Covered Call:
β’ Buy 100 shares @ $50 = $5,000
β’ Sell $55 call = $2 premium
π° Max profit = $700
Synthetic Covered Call:
β’ Sell $55 ITM put = $7 premium
π° Max profit = $700
Capital required = ~$1,750
3. How This Works
When you sell an ITM put, the premium you collect is made up of:
π Intrinsic Value:
The difference between the strike price and stock price.
β’ Adjusts your breakeven to the
current stock price.
β³ Extrinsic Value:
Time & volatility value.
β’ Lowers your breakeven below the
stock price.
When you sell an ITM put, the premium you collect is made up of:
π Intrinsic Value:
The difference between the strike price and stock price.
β’ Adjusts your breakeven to the
current stock price.
β³ Extrinsic Value:
Time & volatility value.
β’ Lowers your breakeven below the
stock price.
4. Breakeven Comparison
Covered Call:
β’ Buy stock @ $50
β’ Sell $55 call for $2
π Breakeven = $48
Synthetic Covered Call:
β’ Sell $55 put for $7
π Breakeven = $48
Same exact risk/reward. π
Covered Call:
β’ Buy stock @ $50
β’ Sell $55 call for $2
π Breakeven = $48
Synthetic Covered Call:
β’ Sell $55 put for $7
π Breakeven = $48
Same exact risk/reward. π
5. Why Use It?
π‘ Capital Efficiency
β’ Covered call: $5,000
β’ Synthetic covered call: ~$1,750
π‘ Same Payout
β’ Max profit = $700 in both cases
You keep the same income but tie up 65% less cash! π
π‘ Capital Efficiency
β’ Covered call: $5,000
β’ Synthetic covered call: ~$1,750
π‘ Same Payout
β’ Max profit = $700 in both cases
You keep the same income but tie up 65% less cash! π
6. Things to Watch Out For
1οΈβ£ Assignment Risk:
If held near expiration, you could be assigned. I recommend rolling by 21DTE to the next monthly cycle to avoid assignment.
2οΈβ£ Margin Requirements:
A falling stock may increase your margin usage.
Manage risk properly and youβll be fine. π
1οΈβ£ Assignment Risk:
If held near expiration, you could be assigned. I recommend rolling by 21DTE to the next monthly cycle to avoid assignment.
2οΈβ£ Margin Requirements:
A falling stock may increase your margin usage.
Manage risk properly and youβll be fine. π
What do you think of this strategy?
Let me know below! π
If you found this helpful:
β€οΈ Like the first tweet
π Retweet to share this with l
others
π‘ Follow for more options trading
strategies!
Let me know below! π
If you found this helpful:
β€οΈ Like the first tweet
π Retweet to share this with l
others
π‘ Follow for more options trading
strategies!
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