Calling All Fans!

We're letting tastynation call the shots! Give us your trade idea or let us solve your problems.

Submit

Market Measures

Monday – Friday | 9:00 – 9:20a CT

Cross Product Covered Calls

Market Measures

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

A covered call is comprised of long 100 shares of stock and a short out of the money call option. If traders don’t want to forfeit their upside potential, can they construct a covered call by selling calls on a highly correlated index?

The Study:
  • Portfolio of 100 Shares Five Underlyings:
    • AAPL, IBM, XOM, JNJ, GS
  • Compared Two Variants of Covered Calls
    • Short 30 Delta Calls on Each Individual Stock
    • Short 3 30 Delta Calls on SPY
  • April 2018 to Present
  • 45 DTE Held to Expiration
Results:

Compared to just the portfolio of long stock, the covered call portfolio has very similar performance with 10% less volatility. Almost identical results are obtained when the covered call is initiated on SPY! Using a highly correlated index, traders can consider selling calls on the index to simulate a covered call without forfeiting their upside potential.

Market Measures More installments

See All »

Latest tastytrade Videos As of July 22

Most Shared From the last 30 days