Deepak Shenoy

Which IT Outsourcing Company Gives Maximum Return on Covered Calls?

Actually, you would write an OTM (out of the money) naked put - not an in the money one. $55 put is already in the money to the tune of $4, and the real price of it should be around $9 ($6.5 looks suspiciously low)

For the covered call, you chose a $55 call, getting $3.5 on it. THat means at a spot (cash) price of $50.5, you are effectively getting the share for $47, which is your break even point on the downside. To get the same thing you should write a $50 put for $4 (meaning a BEP of $46) or a $47.5 put at $2.85, which is an (even lower) break even point of $45 or so. THe former is preferable if you are bullish since you get more commissions (which is the income) and the latter is a play-it-safe strategy. Essentially the put should be out of the money and the break even point should be around the same level as the covered call you would otherwise have written.

Coming to brokers that give this option: I am in India where all brokers allow you to write naked puts on Indian stocks or futures, margin requirements vary from 50% to 10% of (strikeprice x lot size). In the US many brokerages do not allow naked put selling - or if they do they ask you to put up 100% of (strikeprice x lot size). the 100% margin is lousy because then it increases your capital exposure needlessly; obviously you will plan to get out of the trade if it goes against you (same as with a covered call). Still it lets you pay brokerage only one way (for the option) which is cheaper than the covered call (buy trade plus the option). But there might be a few that allow a naked put option for a decent margin - you may have to check...