Options 101: How to Add a Protective Put to A Covered Call
December 8, 2015
Last update: July 2021
When you hold covered call trades, you don’t always want to simply get out. However, there are times you need to protect your risk on these positions. In this video, Tackle Trading’s Coach Tim explains when, how, and why a trader would buy a put option on a covered call position.
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3 Replies to “Options 101: How to Add a Protective Put to A Covered Call”
I like it, Tim! I needed to learn the collar trade for a couple of covered calls I have. They have earnings next week & now I’ll be ready!
Tim, question for you. If you buy the protective put right before earnings won’t that value of that put option after earnings go down because the volatility in the option decrease and you will lose a lot of value on the put you bought? (Volatility crush?).
Kody – can happen, but it shouldn’t impact your decision to protect. The thing a trader needs to do before an earnings is use the risk graph so they can plot the P/L of the overall position if it goes up or down. Worrying about 1 component of the 3 isn’t the right mindset – think about the entire trade.
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