tastytrade logo
uploaded image

Jan 22, 2016

The Data Around Selling Covered Calls | Skinny on Options Data Science

By:Michael "Dr. Data" Rechenthin

What Call Should I Sell?

A common question that we get on the tastytrade Research Team is, “I want to sell a covered call. What strike should I choose?” Remember, selling (or writing) a covered call is a strategy that sells a call against shares of stock you own. You would do this to reduce the cost basis of the long stock, which in turn increases the probability of profit. Typically, you sell one call for every 100 shares. 

To answer this question, we looked at two different covered call strategies: (1) selling an at-the-money (ATM) call versus (2) selling an out-of-the-money (OTM) call at 30-delta. We also compared the covered calls to simply buying and holding the S&P 500. You can get all the details from the “Skinny on Options Data Science” segment from January 14.

Before I get to the answer, here’s a quick comparison of the different strategies based on the price of the S&P 500 ETF (SPY) on January 20 (closing price $185):

Selling the ATM call receives the largest amount of premium, but the maximum profit is capped at the premium received ($5 per share in this example) – but this also means that the breakeven is $185-$5 = $180. The 30-delta call, on the other hand, receives a smaller premium but the upside is larger – $8 per share. The downside is less since the premium received is smaller – $185-$3 = $182. 

For a quick analysis, we can compare BXM, the CBOE’s S&P 500 at-the-money covered call index, and BXMD, the CBOE’s S&P 500 30-delta covered call index, with the S&P 500 total return index (which is inclusive of dividends).

While the 30-delta covered call had the best performance since 2000, the at-the-money covered call did pretty well over time, too, compared to buy and hold.

Next, we took a look at the relative performance in bull markets.

Finally, we look at the performance during bear markets.

The bottom line is selling either at-the-money or 30-delta covered calls in the S&P 500 outperforms simple buy and hold in most scenarios. But there is no “best” strike since it depends on your outlook of the stock. The 30-delta call provides a higher potential return while the ATM call provides for a lower breakeven. It’s the strategy that matters most.  Getting probability and positive time decay from the short call on your side happens when you sell an at-the-money or out-of-the-money call against long stock. 

For more information on this strategy, watch the Skinny on Options Data Science episode here called “The Data Around Selling Covered Calls”. 

If you have any questions about the segment, leave a comment below or feel free to reach out to research@tastytrade.com.


Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on tastyworks.com. 

tastytrade is a trademark/servicemark owned by tastytrade.

tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”).

tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with tastytrade (“Marketing Agent”) whereby tastyworks pays compensation to Marketing Agent to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastyworks. tastytrade is the parent company of tastyworks. tastyworks and Marketing Agent are separate entities with their own products and services. tastytrade has different privacy policies than tastyworks.

Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on quietfoundation.com is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.

© copyright 2013 – 2022 tastytrade. All Rights Reserved. Applicable portions of the Terms of use on tastytrade.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastytrade’s podcasts as necessary to view for personal use.