Beat the Market with Covered Calls?

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:

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