Covered-call strategies promise an appealing combination: Equity exposure, lower volatility, and regular income from selling options.
But covered-call strategies also have substantially lower market beta than the equities they own. That raises an interesting question: Does option writing actually improve the risk-return tradeoff, or could investors do better by simply holding less equity and making withdrawals themselves?
I test this using long histories of S&P 500 and Nasdaq-100 covered-call strategies, covering both benchmark indexes and investable ETFs.
The results challenge some of the conventional arguments for covered calls, not only on returns, but also on downside protection and the income they generate.
