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Beat the Market with Covered Calls?

November 9, 2023 • Posted in Equity Options

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 onĀ 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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