Chris Monoki

Covered Calls: More on Why They're A Losing Investment Strategy

You have a flaw in your testing of the buy/write, and that it you assume a normally distributed pattern of returns. In the real marketplace, as we now know, returns are not normally distrubuted, but that they are skewed. Morever, while the tails are fatter, the left side is much more fat than the positive side.

Thus a buy/write strategy, say 1%-3% out of the money doesn't necessarily lead to a contraint on upside and allows for the underlying to move. In other words, you're targeted the historical skew of the returns. So, if you write, say, 1% out, and draw down, say, 1% premium, the likeliness of the naked underlying exceed the buy/write drops off significantly because of the skew in returns.

So please, for goodness sake, stop assuming what has been proven to be false: the market is not normally distributed.

S/F
Chris Monoki