Great in practice, not in theory: An empirical examination of covered call writing
There are various mutual funds in existence1 that claim to enhance returns to unit holders through writing call options on investments held in the funds. This strategy is called ‘covered call writing’ when the number of options written on a stock does not exceed the number of shares of that stock held in the portfolio. Proponents of the covered call strategy assert that the portfolio benefits from a price increase2 and the call premium under conditions when the stock is called out, and benefits from the call premium if the stock is not called out. In the latter instance, income from writing the call mitigates the drag on returns due to stagnancy or decline in the price of a portfolio member.
McIntyre, M, & Jackson, D. (2016). Great in practice, not in theory: An empirical examination of covered call writing. In Derivatives and Hedge Funds (pp. 253–268). doi:10.1057/9781137554178