Is covered call writing on dividend stocks the holy grail for the semi risk averse investor?

[ironchef]

I'm asking myself, "Why I am bothering with this?" "That's a good question", I answered myself. Be that as it may...

This study concludes that that the covered combination and covered call strategies outperform the long stock strategy which outperforms the collar and protective put strategies. I assume that's on a risk adjusted basis rather than actual $$ performance since the very last chart shows that put protected stock and the collar did far better than the other too. Honestly, it's too much effort to waste time on sorting this out.

What I will say is that put protected stock is equivalent to a buying a call. The study couldn't figure that out?

Also, since their covered combination is defined as long stock plus short call plus short put, all that means is that you're doubling up. It should obviously generate greater return. IOW, a covered call is equivalent to a short put so this covered combination is equivalent to:

1) long stock plus short call plus short put (as they described)
2) two covered calls
3) two short puts

Whether they adjusted for size to compare equally, I dunno and I don't care. Studies like this prove nothing because 1/2 the time, the academic pinheads doing them are far removed from the reality of trading... and 10 stocks plus a market proxy proves squat.

Thank you for the coaching, I can tell you really understand options.

No need to get upset sir, I understand your observations and agree with many of your points.

About academic studies, they often have to assume a set of produceable but consistent, simple, assumptions in order for the hypothesis to be testable, an automatic algorithm can be programmed to run the tests and PhD thesis written. They are however very useful to me as they provide a framework for me, a retail, to understand the fundamental principles of options pricing and interdependency.

Best regards to you,

 

[ironchef]

It seem that in the study, the covered call worked the best on the boring, mature, industry leaders (WFC and XOM). For the growth stocks (high flyers), the cover call didn't work as well. That is why I choose stocks like WFC, XOM, ADM, T, VZ. They are industry leaders, mature, consistent dividend companies. Yeah, boring...Like I said, I'm 62. I live in California...Wake up sometimes between 9 and 10 am. 1/2 the market is over by then!! Many of my orders are done the night before...Or in the afternoon EST. Even if they don't get called away (2007)...I usually have a boring stable company that is paying a dividend in that bear market. Yeah, that VZ is a paper loss. I'll do a leap for a year out when it expires...At $35. I'll recoup some of my money...Hoping it doesn't get called away. The next year I'll do another leap. Does it work better than buy and holding the widow and orphans stock?? Yes!! The above shows it...

By the way Cabin111, thank you for sharing your thoughts and method with us. I appreciate your comments even if I no longer mechanically trade covered calls or cash secured puts.

If you are happy with your method and outcome and don't want to change, more power to you. If you want to improve and get better, it is worthwhile to give some thoughts on what spindr0 said.

There are many way to make money and lose money trading options. None of us have that cornered.

Best regards,

 

[spindr0]

Ironchef,

I understand options on the retail level, having used them in a variety of ways for 35+ years. It's nowhere near what some of the pros here comprehend and share.

I am not upset. If you thought that my ranting against the academic pinhead study made you think that it was directed at you, no worries. It was not, in any way. And you don't have to agree with me at all. "Free will, it is a bitch."

For argument's sake, let's assume that the study is correct in that over the long haul, strategy XYZ makes a bit more money than the others. Is that an edge? Just blindly throw your money into it? Now you have a high probability of success? Screw timing and selection. Screw risk management. All in on XYZ !!! OK, I'm having a bad hairs day and I'll stop ranting.

 

[viruscore1]

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