The time decay premiums are always the profit even when called away????? Really??? Buy writing the Spy has not beaten the market ,and by your assumptions,dollar cost averaging is likely a better trade.. I would need specifics from the OP to backtest
I'm a very naive 30-year experienced options trader, so please take anything I write with a grain of salt here: If you write off your investment in the SPY, let's say at this moment 438 a share, X 100 = $43800. If you then write the call July 438 for a premium of 7.2 or $720. Your $720 dollar is your profit. Now, what most people do, what I do not do, is this: Yeah, but if my underlying goes to 350 I have a loss of 88 dollars a share or $8800 total. What I say is: I do not care. I still be able to write another option, because I still own 100 shares. The only thing that is going to happen, is that in reality, I should write maybe ten cycles, before I recoup the loss, through every month again write an option out of the money. Then other traders will chime in and say: Ok, but when the price then fluctuates to the upside and your stock, gets called, then you have a loss. Nope. I have collected the time premium, and if it is clear that the call is heavy in the money, the time decay is my profit, because the underlying goes also up. Maybe not as much, as my original investment, but that is ok. I can either let the stock be called away, or I invest a little more and go further out in a call-writing session at a higher price. In the long term, I get enough premiums to cover my investment. Sometimes it is as fast as 24 months, sometimes it takes 54 months. I do not care. S&P index buying outperforms the cover call? Sure, I do not care. My goal is monthly cash flow and not appreciation of the underlying or what worries most people the deprecation of the underlying.
Can you explain how you don't have a loss. You have 43,800 invested and you received 720 in premium. If the stock drops to 350 and you write another option(say 10 bucks OTM) and get another 720 in premium and get called at 360. You now have 36,000 in cash plus the option premiun of 1440 for a total of 37,400 You started with 43800 and now have 37400. How can that not be considered a loss?
I´m going to try too explain my view: 1) if you are at the end of the option life, you have no more time decay. So, delta is almost 1 to 1 with the underlying. The only problem we have is that if we let our stock call away, we have a difference between what we have paid for it and what we get for it. But we can also just buy the close to expire option back and roll over to a higher out of the money option. That buying back, cost you money, because it is here where you pay the difference with your original stock price. But that is also going to be recouped, if we just keep writing for the time decay. It is a matter of time, before you will get all the investment in the stock back. 2) let's say you let your stock being called away. Turn around and write an out of the money put. There is more to it, then this, but what I'm trying to say is, when you have something that doesn't goes to zero, in the longterm, the premiums of the options will cover your expenses of buying the stock and the differences in fluctuations.
I sort of see your reasoning,but lets start with the fact that a Covered call is a Short Put.If you look at it that way,if the market tanks and drops 150 SPY points,your balls out long,down 150 minus the premium taken in. Your next trade has no relevance.Its an entirely new position. The roll is meaningless.You should be asking what is the best trade available with the SPY down 150,not blindly/systematicaly rolling to make up losses. Selling 50 delta puts has not outperformed the market the last 10 years. Not a terrible strategy,and obviously one you feel comfortable with,and thats an important factor.