Example: Increase Returns Significantly via Selling Calls

The best way to support an idea is via an example. Therefore, since the beginning of the year (i.e. 1/1/2020), I have been tracking GILD investment performance utilizing a covered call approach. When compared against a standard buy and hold strategy, the YTD out-performance has been substantial.

First - Standard Buy and Hold:

  • All percentages are YTD gains (not annualized returns).

Second - Sell Upside Call Options:

  • Utilizing a covered call strategy, the following YTD returns have been captured:

  • Generally speaking, the exact performance of a covered call strategy is very dependent on the exact characteristics of call options being sold; including duration and strike price mainly.

  • I generally relied upon selling options 1 week out at strike prices $1 to $2 above the current share price.

  • I also employed a strategy where I do not lose the stock if the stock price goes over the option strike price (will discuss more on this at a later time).

  • YTD out-performance captured: 20.33%. Total YTD return of 38.6% (compared to 18.3%). Not bad.

39 views0 comments