About That Call Write

• Posted by Adam Warner
• on January 5th, 2010

I rip into Buy Writing over at Options Zone.

Covered call writing (also known as buy-writing) was, is and will likely always be the most popular use of options.

It a simple and effective strategy. Own stock? Sell an equal number of calls against it. Worst case is best case, in that if the stock rallies and the calls you shorted close in the money, you get assigned the stock. You have now sold your stock for a profit.

Or if the stock you already own declines, the calls you sold at least provide a modest cushion to the loss.

OK, I was just going for pretend conflict, I actually like the strategy. But here’s an interesting dichotomy. The worst relative performance of Buy-writing last year (compared to just owning SPY) occured if you slapped on buy writes with the VIX over 50. Yet over the course of the year, the Buy Write Index pretty much broke even with SPY, partly thanks to the implosion of the VIX. So go click thru.

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