For today’s segment of Market Measures, Tom and Tony provide some interesting alternatives to the. They look to see which bullish strategies-- buying stock, covered calls or the -- produces the best results.
A "Poor Man’s Covered Call" is a Long Call Diagonal Debit Spread that is used to replicate a Covered Call position. The strategy gets its name from the reduced risk and capital requirement relative to a standard covered call.Study:
-Covered Call: 30 delta 45 DTE
-PMCC: 70/30 delta 105/45 DTE
- All data was 2006 to present in XOP
If you are not familiar with XOP, it is an ETF with 63 companies in oil & gas exploration and production and oil & gas refining and marketing. XOP has been down money over ten years, even when considering the dividend.Results:
While the profit is negligible, the poor man’s covered call does not lose money as the long stock did. In a bullish environment, the potential for profit can be much higher. Replacing the long stock with options increased the success rate and produced a profit even when the stock remained flat.
Tune in for a full breakdown of the results and Tom and Tony's preferred strategy in this asset class!