Selling Calls & Puts with the Same Stock in Mixed Market Conditions

Covered call writing and selling cash-secured puts trades can be structured to be more aggressive (out-of-the-money-OTM) covered calls and slightly OTM cash-secured puts or to lean defensive (in-the-money- ITM) covered calls and deep OTM cash-secured puts). I am frequently asked if it is prudent to sell calls and puts on the same underlying security and same expiration date. This article will analyze trades executed with UTI using a more aggressive covered call writing strategy (2 contracts) and a more defensive cash-secured put approach (3 contracts). The 5 contracts sold reflected a mixed market environment where I opted to lean slightly defensive.

 

A real-life example with Universal Technical Institute, Inc. (NYSE: UTI)

• 3/3/2025: UTI trading at $28.48
• 3/3/2025: The 3/21/2025 $30.00 call had a bid price of $0.48 (aggressive approach)
• 3/3/2025: The 3/21/2025 $25.00 put had a bid price of $0.20 (defensive approach)

 

Expectations prior to running the calculations

• The covered call trade will offer greater initial and annualized returns
• The covered call trade will offer the potential of a 2nd income stream in the form of share appreciation from current market value, up to the OTM call strike
• The cash-secured put trade offers only 1 income stream potential (barring exit strategy intervention)
• The cash-secured put trade will offer a much lower breakeven price point

 

Initial covered call (aggressive) calculations with the BCI Trade Mangement Calculator (TMC)

• Red circle: If taken through expiration, this is a 19-day trade
• Yellow cell: The breakeven price point is $28.00
• Brown cell: The initial time-value return is 1.69%, 32.38% annualized
• Purple cell: There is an additional upside potential of 5.34%, creating the possibility of a 7.03%, 19-day return

 

Initial cash-secured put (defensive) calculations with the BCI Trade Mangement Calculator (TMC)

• Red circle: If taken through expiration, this is a 19-day trade
• Yellow cell: The breakeven price point is $24.80 ($28.00 for covered call writing)
• Brown cell: The initial time-value return is 0.81%, 15.49% annualized (1.69%, 32.38% annualized for covered call writing)
• Purple cell: If shares are “put” to us at the breakeven price point of $24.80, it will represent a 12.92% discount from the price of UTI when the trade was entered

 

Discussion

Both covered call writing and selling cash-secured puts can be utilized with the same security in the same contract cycle. These UTI examples exploited calls for a bullish approach and puts for a conservative path.

 

 

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This book will detail how to enter, manage and calculate trade adjustments for all market conditions. After we select the underlying security and sell the corresponding option, we immediately move into position management mode. There are over 20 exit strategies defined, as well and when and how to implement these plans.

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