Why covered call?

[nooby_mcnoob]

If you follow the script, you won't buy back at $70. You immediately buy back at the then market ~$60.

* I hold the stock @ 50
* I write a call @ 60 expiring Friday
* Price goes to 65
* Expires $5 ITM
* Call is exercised at EOD Friday, now I have no position
* I have to buy at market price on Monday (probably around $65) to remain in the position
* Alternatively, I can buy back the option on EOD Friday at a $5 loss/share, which works out to the same.

What am I missing?

 

[drmark27]

SPY 1993-2019. BS, Approx IV using mod. HV.

That doesn't tell me much. How exactly did you do the backtest?

 

[nooby_mcnoob]

Seems to me that if somebody were going to hold a portfolio "through thick and thin", he'd be writing calls all the time.

I think this is correct. I know an accountant who has been holding dividend paying stock and selling covered calls against it his entire adult life (more than 50 years). Can you imagine...

 

[ironchef]

But aren't you still no worse off then if you'd held the stock through the decline... plus you have collected premium... ??

Seems to me that if somebody were going to hold a portfolio "through thick and thin", he'd be writing calls all the time.

Don't forget commissions and slippages.

I did, for 6 months mechanically, every week in early 2013. Let's just say I stopped after 6 months.

Now I still do buy-write but don't do it mechanically.

 

[ironchef]

That doesn't tell me much. How exactly did you do the backtest?

Instead of asking me, you should go figure it out yourself.

 

[drmark27]

Instead of asking me, you should go figure it out yourself.

If your methodology was flawed, then your performance claims are irrelevant.

Describe it in enough detail so I can replicate it.

 

[blueraincap]

Stupid? How could receiving consistent additional income on a portfolio you hold reduce your returns?

Perhaps you could grace us with your wisdom...

keep selling puts produces consistent income? can be in the scenario you read in some dumb books. you don't get the basic logic of an option price and conditional probability. big mouth, small punker, linear mind, really wish more of you doing nonlinear trading

 

[ironchef]

If your methodology was flawed, then your performance claims are irrelevant.

Describe it in enough detail so I can replicate it.

This is an anonymous forum, what you think of my claims is irrelevant to me.

I already gave you the framework, you talked like an expert, a pro, so you are more than competent to prove/disprove it yourself.

Have a good day.

 

[adamchubb]

I think this is correct. I know an accountant who has been holding dividend paying stock and selling covered calls against it his entire adult life (more than 50 years). Can you imagine...

do you know what sort of return / income he can generate? e.g. 3% of dividend yield + 5 to 6% of option premium income?

 

[ETJ]

http://www.cboe.com/delayedquote/advanced-charts?ticker=BXM

It starts underperforming around 2016. Simple logic - if it's less risky over time it should underperform. It's about the risk-adjusted return.

One of the major advantages BXM has is cash settlement. No portfolio to rebuild.