Best option trading strategy: covered call?


Best option trading strategy will probably surprise you. Because it’s a covered call! What? How is this possible? Let us dig deeper into it.

text: The best option trading strategy? background: covered call payoff diagram

Best option trading strategy according to CBOE data.

So we will admit the title here was a bit of a click bait. You can’t say this is the best strategy in general. Because as we have repeatedly told you… There is no such thing as “best strategy”. You can learn more about strategy bias in our advanced course.  However for each options strategy there are ideal circumstances in which it preforms best. And covered call seems to be over preforming everything else when it comes to equity indexes. What’s even more impressive is that it has been doing that for a long time. How do we know? From analysing CBOE strategy benchmark indexes data.

So should you start trading this?

The answer is: it depends. Are you able and willing to enter short options positions? If so this strategy may find it’s place in your portfolio. Especially if you already trade stocks. Also don’t forget that this is a great way for beginner options traders to get a bit of experience as covered calls are quite straightforward.

The alternative

There is however an even better alternative to covered calls. And in our opinion it may be the best option trading strategy when in it comes to long term equity indexes trading. It is the short put. This strategy provides basically identical exposure but is less capital intensive. Which can be a great benefit. Also because the market will go up more often then not the short put will get exercised less often. Therefore it tends to be easier to manage.

Will this change?

Now the question that comes to mind is… Will this trend continue? Probably yes, as it has been going on for many years already and we know that some strategies ceased to preform during the same time period. As it is presented in our article about iron condors. There may also be an inherit edge in selling puts as they are “not part of zero sum game” (there is constant demand for puts as those are used by institutional traders for portfolio hedging). But no one really knows for sure and only time will tell. So you have to take your own decision on this matter.



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