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Performance of covered calls

By John Board, C. Sutcliffe and E. Patrinos

Abstract

Writing call options against long positions in the underlying equities is the most popular options strategy. Since the variance is an inadequate measure of risk for options strategies, this paper uses a range of dominance criteria and four utility functions to compare the performance of partly and fully covered call strategies with that of the underlying equity portfolio. It is found that the dominance criteria are ineffective in choosing between strategies. However, all four utility functions (representing different combinations of absolute and relative risk aversion) find that the covered call strategy is preferable for the data period studied, supporting the widespread use of this strategy

Topics: HJ Public Finance
Publisher: Routledge
Year: 2000
DOI identifier: 10.1080/135184700336937
OAI identifier: oai:eprints.lse.ac.uk:7513
Provided by: LSE Research Online
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