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"&amp;lt;p&amp;gt;Puts and calls are obviously different option types. However, there is a mathematical relationship between calls and puts -- when the put and call expire at the same time, have the same &amp;lt;a href=&amp;quot;https://www.thebalance.com/options-strike-price-exercise-price-and-expiration-date-1031126&amp;quot; data-component=&amp;quot;link&amp;quot; data-source=&amp;quot;inlineLink&amp;quot; data-type=&amp;quot;internalLink&amp;quot; data-ordinal=&amp;quot;1&amp;quot;&amp;gt;&amp;lt;strong&amp;gt;strike price&amp;lt;/strong&amp;gt;&amp;lt;/a&amp;gt;, and are on the same underlying asset.&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;Because of that relationship, there is more than one way to\u00A0build\u00A0any option position -- and that means that there are equivalent positions (i.e., positions with identical profit/loss profiles) -- even though the positions appear to be very different.\u00A0&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;Although you can survive by avoiding the small amount of homework involved in understanding this concept, it does mean that you will occasionally be leaving money of the table for no good reason.\u00A0Isn&amp;amp;#39;t that why you are trading? To make money? Beyond that, it makes sense for you to prefer understand how options work -- rather than hoping that you are following logical advice from another trader.&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;Traders\u00A0own\u00A0positions with an expectation of earning a profit when the markets behave.\u00A0If you can own a different position that results in\u00A0the same profit (or loss), but which requires paying less in commissions, wouldn&amp;amp;#39;t that be preferable?\u00A0\u00A0&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;Infrequently you may discover that the markets are temporarily inefficient (it won&amp;amp;#39;t last long), and that one of the\u00A0equivalent positions is available at a slightly better (perhaps $0.05) price than its equivalent. If you spot that difference, you can own the position with that $0.05 discount.&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;\u00A0&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;&amp;lt;strong&amp;gt;The basic equation&amp;lt;/strong&amp;gt;\u00A0is often referred to as put-call parity. You can find &amp;lt;a href=&amp;quot;http://en.wikipedia.org/wiki/Put%E2%80%93call_parity&amp;quot; data-component=&amp;quot;link&amp;quot; data-source=&amp;quot;inlineLink&amp;quot; data-type=&amp;quot;externalLink&amp;quot; data-ordinal=&amp;quot;2&amp;quot;&amp;gt;&amp;lt;strong&amp;gt;more details here&amp;lt;/strong&amp;gt;&amp;lt;/a&amp;gt;. \u00A0For the purpose of introducing this topic, the effect of interest rates is ignored.\u00A0&amp;lt;/p&amp;gt;&amp;lt;blockquote&amp;gt;&amp;lt;p&amp;gt;Put-call parity\u00A0describes the relationship between\u00A0calls, puts, and the underlying asset.&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;Owning one call option and selling one put option on the same underlying asset (with the same strike price and expiration date) is equivalent to owning 100 shares of stock.\u00A0Thus,&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;S &amp;amp;#61; C \u2013 P&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;where S &amp;amp;#61; 100 shares of stock; \u00A0 C &amp;amp;#61; one call option ; \u00A0 P &amp;amp;#61; one put option&amp;lt;/p&amp;gt;&amp;lt;/blockquote&amp;gt;&amp;lt;p&amp;gt;&amp;lt;strong&amp;gt;Simple proof:\u00A0&amp;lt;/strong&amp;gt;\u00A0Consider a position with one\u00A0long call and one short put. When expiration arrives, if the call option is in the money, you will &amp;lt;a href=&amp;quot;https://www.thebalance.com/exercising-an-option-2536801&amp;quot; data-component=&amp;quot;link&amp;quot; data-source=&amp;quot;inlineLink&amp;quot; data-type=&amp;quot;internalLink&amp;quot; data-ordinal=&amp;quot;3&amp;quot;&amp;gt;&amp;lt;strong&amp;gt;exercise&amp;lt;/strong&amp;gt;&amp;lt;/a&amp;gt; the call and own 100 shares. If the put option is in the&amp;lt;br/&amp;gt;money, your account will be\u00A0 and you must\u00A0buy 100 shares. In either case, you own stock.&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;NOTE: If the stock is &amp;lt;em&amp;gt;exactly&amp;lt;/em&amp;gt; at the money when expiration arrives, you are in a quandary. You don\u2019t know whether\u00A0the put owner will exercise and therefore, you\u00A0do not\u00A0know what to do with your call. The best solution\u00A0is to buy the put to cancel any obligations. It should not cost more than\u00A0$0.05. Next, if you do want to own stock,\u00A0exercise the call option. If not, allow the call to expire worthless. By covering the short put, you are in control.&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;\u00A0&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;&amp;lt;strong&amp;gt;First example of an equivalent position&amp;lt;/strong&amp;gt;&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;There is one equivalent position that every option\u00A0trader, even someone who is very new to the game, should know. These represent popular\u00A0strategies and\u00A0you are likely to adopt one (or both).&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;Take a look at a covered call position (long stock; short one call), or &amp;lt;strong&amp;gt;S -\u00A0C&amp;lt;/strong&amp;gt;.&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;From the equation above, &amp;lt;strong&amp;gt;S -\u00A0C &amp;amp;#61; - P&amp;lt;/strong&amp;gt;.&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;In other words, if you own stock and sell one call option (covered call writing) then your position is equivalent to being short one put option with the same strike and expiration. That position is naked short\u00A0puts. Is that an eye-opener for you? Don&amp;amp;#39;t feel bad about this because few rookie option traders learn about equivalent positions. For some courses, this is considered to be an advanced topic.&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;&amp;lt;strong&amp;gt;Amazing fact&amp;lt;/strong&amp;gt;: Some brokers do not\u00A0allow their inexperienced\u00A0clients to sell naked puts, but they do allow the same investors to write covered calls. When you write a covered call, you already\u00A0own (and paid for) stock. When you write a naked put, you may have to buy the stock later. As long as the\u00A0broker knows that you can afford to buy the stock, it should make no difference which of these positions you own.\u00A0&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;&amp;lt;strong&amp;gt;Takeaway&amp;lt;/strong&amp;gt;: Writing a covered call is equivalent to selling a naked put. This is not a big deal to\u00A0experienced option traders. Now it should be no big\u00A0deal to you either.&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;Selling puts involves paying one commission; the covered call requires paying two. All things being equal, you should prefer selling the put option to doing a buy-write (buy stock\u00A0and write calls) transaction. NOTE: IF you already own\u00A0stock, then trading expenses are identical and writing calls is the more convenient choice.&amp;lt;/p&amp;gt;&amp;lt;blockquote&amp;gt;&amp;lt;p&amp;gt;IMPORTANT: Repeated for emphasis.&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;Two\u00A0positions are equivalent IF AND ONLY IF the options have the same underlying, strike and expiration.&amp;lt;/p&amp;gt;&amp;lt;p&amp;gt;Long 100 IBM and short one &amp;lt;em&amp;gt;I&amp;lt;/em&amp;gt;&amp;lt;em&amp;gt;BM\u00A0&amp;lt;/em&amp;gt;&amp;lt;em&amp;gt;Nov 200 call&amp;lt;/em&amp;gt; is equivalent to being short one&amp;lt;em&amp;gt; IBM&amp;lt;/em&amp;gt;\u00A0&amp;lt;em&amp;gt;Nov 200 put.&amp;lt;/em&amp;gt;&amp;lt;/p&amp;gt;&amp;lt;/blockquote&amp;gt;&amp;lt;p&amp;gt;As you continue to\u00A0trade options, you will encounter\u00A0&amp;lt;a href=&amp;quot;https://www.thebalance.com/conservative-option-strategies-increase-profits-2536800&amp;quot; data-component=&amp;quot;link&amp;quot; data-source=&amp;quot;inlineLink&amp;quot; data-type=&amp;quot;internalLink&amp;quot; data-ordinal=&amp;quot;4&amp;quot;&amp;gt;&amp;lt;strong&amp;gt;other equivalent positions&amp;lt;/strong&amp;gt;&amp;lt;/a&amp;gt;.\u00A0&amp;lt;/p&amp;gt;"^^<http://www.w3.org/2001/XMLSchema#string>
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