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selling covered calls = selling naked puts
putting a cap on the upside for a return ( cushion ) on the downside is a
conservative approach
but will NOT yield a benefit of total return which is worthwhile to the
investor ( it is to the broker )
if a 24 to 48% return were attainable the big arb firms would grind it down
to the 15 % level i.e. 1.2% / MO.
I was a founding member of the CBOE, and ran several option trading desks.]
Sid.
-----Original Message-----
From: Gary Funck <gary@xxxxxxxxxxxx>
To: omega-list@xxxxxxxxxx <omega-list@xxxxxxxxxx>
Date: Thursday, April 22, 1999 12:20 PM
Subject: Re: Need Option Wizard
>On Apr 21, 1:02am, Sigstroker@xxxxxxx wrote:
>> Subject: Re: Need Option Wizard
>> IMO, covered call writing is anything but conservative, and neither is
>> expectation of a 2 to 4 percent a month income.
>>
>
>The studies that I've read generally indicate that covered call
>writing offers about the same return as just owning the underlying,
>but that the variance of returns is smaller, which gives a higher
>Sharpe ratio. This of course generally assumes that the market
>trend is overall up, as it has been for the past almost 20 years.
>In a down market, you'll still lose money, but will lose less,
>because there is still some return generated by selling the calls.
>Also, the proceeds from the calls sold generate cash flow, which
>may increase the overall total return, due to compounding of the
>proceeds from selling calls.
>
>You might also consider selling fully collaterilized puts, which is an
>equivalent strategy to selling covered calls, but often has lower
>transaction costs.
>
>A related book, is by Lyons ("Winning in the Options Market"),
>http://www.amazon.com/exec/obidos/ASIN/1557384312/qid=924806046/sr=1-1/002-
4075747-1483407
>
>Here's the blurb:
>After conclusively demonstrating why most popular options strategies
>don't work, Mr. Lyons reveals in his book Winning in the Options
>Market, the three strategies that can produce profits year after year.
>Specifically: A strategy not found in any other book, this method has
>produced an average annual return of 74% over the last 12th years. This
>extraordinary approach involves buying and selling options on two
>different stocks that are selling for the same price; Covered portfolio
>writing, a strategy which has produced a return about three percent
>higher than conventional covered call writing; Writing naked options-by
>reducing the risk through diversification, this strategy historically
>has produced very high returns.
>
>
>
>--
>| Gary Funck, Intrepid Technology, gary@xxxxxxxxxxxx, (650) 964-8135
>
|