Poor Man's Covered Call vs traditional long stock portfolio

[newwurldmn]

You know that I trade a ton of diagonals but he's long vol when he's looking to short vol. He's better off trading a long cs(short ps), ATM short wing.

This makes more sense. A true vert so you're not needlessly adding vega. Skew is meaningless as the deep is an 85D.

OPs trade has better upside, but then go with an ATM bull vert. I don't see why he would buy vol in this scenario.

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fair point.

 

[Bastion_01]

covered calls, or any variations of it, underperforms against simply buy & reinvest-dividends of the index. https://www.cboe.com/us/indices/dashboard/bxm/

There you can see BXM (SPX Buy Write) underperfoming vs. SPX, which doesn't even include the dividends.

Replacing stocks with leaps is even worse since now you're giving up on the dividends; another way to look at it is, you're investing in companies but you have to periodically distribute part of your invested assets to stock holders...

 

[destriero]

covered calls, or any variations of it, underperforms against simply buy & reinvest-dividends of the index. https://www.cboe.com/us/indices/dashboard/bxm/
There you can see BXM (SPX Buy Write) underperfoming vs. SPX, which doesn't even include the dividends.

bc we've been in a runaway bull mkt. I can name ppl with huge buy-write portfolios that know how to pick stocks and time vol and have dramatically outperformed the return of the SPX over the last 20Y.

"Any variations of it" I don't think so.

 

[newwurldmn]

covered calls, or any variations of it, underperforms against simply buy & reinvest-dividends of the index. https://www.cboe.com/us/indices/dashboard/bxm/

Replacing stocks with leaps is even worse since now you're giving up on the dividends; another way to look at it is, you're investing in companies but you're willing to give the earnings away... how rational is that?

There you can see BXM (SPX Buy Write) underperfoming vs. SPX, which doesn't even include the dividends.

the leaps price the present value of the dividends

 

[Bastion_01]

bc we've been in a runaway bull mkt. I can name ppl with huge buy-write portfolios that know how to pick stocks and time vol and have dramatically outperformed the return of the SPX over the last 20Y.

"Any variations of it" I don't think so.

well, you basically agreed with me. That you'd need to have a significant edge in timing individual names and vol to generate actual alpha.

 

[Bastion_01]

the leaps price the present value of the dividends

Can you provide a source for this opinion? Is it associated with Gordan's Growth Model?

 

[newwurldmn]

well, you basically agreed with me. That you'd need to have a significant edge in timing individual names to generate actual alpha.

no. You said covered calls, any variation of it, under perform.

That means they are strictly inferior.

 

[newwurldmn]

Can you provide a source for it? Is it associated with Gordan's Growth Model? It requires quite a bit of assumptions.

no assumptions and nothing to do with the Gordon growth model. It has to do with no arbitrage. But you know this because you know that covered calls always underperform the index with dividends reinvested.

 

[destriero]

well, you basically agreed with me. That you'd need to have a significant edge in timing individual names to generate actual alpha.

I don't agree that significant edge is needed to outperform passive buy and hold in SPY.

 

[Bastion_01]

no. You said covered calls, any variation of it, under perform.

That means they are strictly inferior.

OK, I worded it badly. Apologies for my lack of clarity, I meant any variation of simple "covered calls", explicit or synthetically.