PNL Graphs: Naked put vs. Covered call

April 27, 2010 07:00 PM

The first profit-and-loss (PNL) graph shows the covered call. The second PNL graph demonstrates the covered call when all the offsetting profits and losses between the stock and short call are canceled out. You will notice that the resulting position results in a synthetic short put.

About the Author
Alex Mendoza is the chief options strategist with Random Walk, which has produced numerous articles, books and CDs on options trading, including a book on broken-wing butterfly spreads. Visit their Web site:  www.RandomWalkTrading.com