ETF/Index Covered Calls Expectation

Discussion in 'ETFs' started by Engine99, Dec 16, 2007.

  1. If you buy an ETF like SPY (S&P500) and write covered calls against it (e.g. every 1-2 month ATM).

    What would be a realistic profit expectation.

    SPY trades around 147
    Jan 08 148 Calls are ~ 3.5. (we're about a month and a week away from expiration)

    Let's assume that the S&P stays the same (or goes up) for the next 6 month, is it realistic to assume you'll be able to get 6 x (6 trades) times 3 bucks 50 if you repeat a similar trade?

    I may be overlooking something obvious here but this looks like very easy money.

  2. There is an ETF that mimics this strategy, this PDF includes a historical backtest against the SP500:

    Selling the calls can help achieve lower overall volatility while yielding similar long term returns. Just remember that selling calls limits your upside while not helping much on the downside.
  3. The expectation should be the average annual rate of return of the market.......maybe ~8%.