What is a Buy Write Strategy?
The buy write involves purchasing 100 shares of stock and simultaneously selling a call option against those shares. This strategy is also called a covered call.
Key Objective:
To generate income from the call premium while holding the stock.
How It Works:
- You buy 100 shares of a stock.
- You sell a call option on that same stock (usually out-of-the-money).
- You keep the premium regardless of what happens.
- If the stock rises above the strike, you may have to sell your shares at the strike price (assignment).
- If the stock stays below the strike, you keep the stock and the premium.
This strategy is used when you have a neutral to slightly bullish outlook and want to generate extra income from your long stock position.
What is Put Selling?
Put selling, or put writing, involves selling a put option with the intention of either:
- Earning the premium if the option expires worthless, or
- Acquiring the stock at the strike price if the option is assigned.
Key Objective:
To generate income from the put premium, or buy stock at a discounted price.
How It Works:
- You sell a put option on a stock you wouldn’t mind owning.
- If the stock stays above the strike, the option expires worthless and you keep the full premium.
- If the stock drops below the strike, you’re assigned and required to buy the stock at the strike (but with the premium reducing your effective purchase cost).
This is typically done when the trader is bullish and wants to enter a position more strategically, or to get paid while waiting for a better price.
Why Are These Strategies So Similar?
At their core, the buy write and put sell strategies share the same P/L profile. They both:
- Cap your upside.
- Generate premium income.
- Offer limited downside protection (via the premium).
- Are short volatility trades, benefiting when implied volatility decreases or remains stable.
This similarity is best understood by recognizing that both strategies can be derived from the same synthetic positions using options pricing theory.
For example:
- Buy Write = Long Stock + Short Call
- Put Selling = Short Put
From a synthetic options perspective:
- A short put is equivalent to a covered call (long stock + short call), when all elements have the same strike and expiration.
This is known as put-call parity, and it forms the foundation for why these trades are nearly identical in expected behavior when executed with equivalent parameters.
A Practical Comparison
Let’s say you want exposure to Stock XYZ, trading at $100:
- In a buy write, you buy the shares at $100 and sell a 105 strike call for $2.
- If XYZ finishes above $105, you keep the $2 premium but must sell the stock at $105.
- If XYZ finishes below $105, you keep the premium and the stock.
- In a put sell, you sell a 105 strike put for $2.
- If XYZ stays above $105, the option expires worthless and you keep the $2.
- If XYZ falls below $105, you’re assigned the stock at $105 (but really paid $103 after accounting for the $2 premium).
In both cases, your maximum profit is $7 ($5 gain on the stock + $2 premium), and your downside risk begins below $98 (accounting for the premium buffer).
Strategic Implications
The choice between these two methods depends more on execution preference and capital structure than on strategic divergence.
When to Use a Buy Write:
- You already own the stock and want to generate income.
- You want to reduce cost basis on your long equity position.
- You prefer to keep the stock unless called away.
When to Use a Put Sell:
- You are not yet long but want to accumulate shares at a discount.
- You want to be paid while waiting for the stock to drop to your desired buy level.
- You are comfortable being assigned and holding the stock.
Both strategies allow you to collect premium and build positions in a disciplined, income-focused manner.
Managing Greeks and Risk
Because these strategies involve short options, managing Greeks is important:
- Delta: Buy writes have delta exposure from the stock. Put selling carries positive delta exposure too, but via the option.
- Theta: Both benefit from time decay. The premium erodes over time in your favor.
- Vega: Both strategies are short volatility. A drop in implied volatility after entry increases the probability of full premium capture.
- Gamma: Risks increase near expiration, especially if the underlying price approaches the strike.
Traders using MenthorQ can monitor volatility smile, net GEX positioning, and skew, which provide insight into where market makers are concentrated and when volatility is overpriced. This can help improve timing for entering either strategy.
Learn more about our volatility smile here.
Key Similarities Recap
- Similar P/L profile: Both cap upside and protect downside with premium.
- Income generation: The primary goal of both is to collect time decay.
- Bullish or neutral bias: Both expect the stock not to fall sharply.
- Volatility exposure: Both benefit from falling implied volatility.
- Assignment risk: One risks being called away (buy write), the other risks buying shares (put selling).
Final Thoughts
Buy writes and put selling are strategically identical in many cases. They serve the same function, generate income with limited downside and capped upside. The choice between them usually comes down to:
- Whether you currently own the shares or not
- Whether you prefer to acquire stock or generate income while holding
- Execution mechanics and capital allocation preferences
Used properly, both strategies can enhance returns and offer more control over stock entry and exit levels.
For advanced users, platforms like MenthorQ allow you to enhance decision-making by analyzing skew curves, net GEX levels, and volatility regime data. This allows traders to time their trades more effectively and manage positions around dealer hedging flows and market structure signals.
Whether you choose a buy write or a put sell, the foundation of success lies in understanding the risk profile, applying proper position sizing, and managing trades with discipline.