Starting Feb. 27, of 2012 (after the market was up substantially at the beginning of 2012), CCI bought some shares of EEM (an ETF for the emerging market) and subsequently sold calls against the position every week. Yes, that's right....every week. This process was stopped on Nov. 23, 2012.
- An investor buying and holding EEM for the same period would have lost 3.4%.
- Selling weekly covered calls on the same position resulted in a 7.3% gain.
- Interestingly this approach lost 11.8% in capital gains but made 19.1% in option premium. This is consistent with the theoretical view of covered calls which sacrifices capital gains in exchange for receiving option premiums. In this case, it seems like the high frequency of weekly calls accentuates this outcome.
More details about the mechanics of this approach can be found at the ICC tab on this blog, however in summary the approach was very simply.
- First Monday morning - buy EEM and Sell covered calls with a delta around 35
- Next Monday
- if the shares were assigned - repeat a buy and write as done originally
- if the options expired worthless - resell covered calls for the next week with a delta of 35
- Rinse and Repeat