Monthly covered calls on the S&P 500 Index beat it by a gross 0.2% only at 1.2%-2.4% target annualized option yields, and trailed it at higher yields (Jan 1999-Jun 2023; cash-settled calls sold by moneyness, held to expiry; gross of costs).
Do covered call strategies, which offer both long equity and short volatility exposures, beat their underlying equities? In their October 2023 paper entitled "A Devil's Bargain: When Generating Income Undermines Investment Returns", Roni Israelov and David Ndong test a strategy of each month selling and holding to maturity cash-settled covered calls on the S&P 500 Index selected to meet a target annualized option yield (based on moneyness). For example, if the target annualized option yield is 6%, they sell calls at 0.5% of the index price each month. They consider a full sample period of nearly 25 years and a subsample covering the second half. Using S&P 500 Index and index call options data to test the specified covered call strategy during January 1999 through June 2023, they find that:
Are Equity Index Covered Call ETFs Working? PremiumFive equity covered call ETFs (PBP, XYLD, QYLD, FTHI, RYLD) have lower average monthly returns and CAGRs than their BuyWrite benchmarks (inception–April 2026; monthly…
Are Equity Put-Write ETFs Working? PremiumEquity put-write ETFs underperformed SPY (average CAGR 5.5% vs 14.3%; MaxDD -20% vs -24%) and PUT (CAGR 7.8%), with three of six beating PUT…
Put Option Buyers Predict Stock Market Returns? PremiumPut Option Trading Efficiency (POTE, slope of put open interest versus a mispricing score from 11 anomalies) is statistically significantly negatively associated with next-month…
