Looking for data on a buy-write strategy

Discussion in 'Options' started by Muffhands, Nov 29, 2018.

  1. Hey ETs

    I am looking for some data on a strategy that I am having trouble finding a name for. I assume somebody has done backtesting on this strategy to see if it is profitable or not, but im having trouble finding any info. I do not use this "strategy" but am just curious as to what it would look like.

    So the strategy is pretty simple, you sell puts on an index fund like SPY, eventually you get assigned the shares, then you sell covered calls against the shares. Once your shares finally get called away you sell puts again. Repeat and repeat. You could start with the buy-write first and then sell puts once your shares are called away. Either way is the same thing obviously. What is the long term outcome of this? If anyone has the capabilities to backtest this maybe at 2%-5% OTM strikes, that would also be sweet.

  2. guru


    Some people use this type of strategy but it has logical flaws, as mathematically results cannot be different from only selling naked puts all the time (and selling the stock when assigned). It also cannot be different from only selling covered calls (and buying stock when losing it due to being assigned short shares).
    Basically if you simply take backtesting results from any covered call strategy then those will be your results.
    Here is how/why selling covered call is identical to selling naked put:

    As for backtests, Option Alpha and CML Machine offer backtesting tools.
    You can also Google any Buy-Write and Put-Write ETFs to see their performance.
    BXMX has the longest history since 2005.
    Muffhands likes this.
  3. Hey Guru. Thanks for the response. So if i understand you correctly, selling puts, until assigned, then selling covered calls, until shares called away, then puts again and repeat,,, does not have a different outcome than just selling covered calls?
  4. gkishot


    This strategy should be certainly no different than selling puts and calls at random times. And this should be no different than just selling strangles let's say once a month or a week.
    Muffhands likes this.
  5. guru


    Yes, the outcome should be identical. Although your thinking may be different and you may be selling covered calls at different strikes than you'd be selling naked puts, so you may have somewhat different results, but they would be either a little random and/or you'd just have an illusion that you may be doing something different.
    Muffhands and gkishot like this.
  6. Cool thanks guys. Was just curious, because I hear many new options trading talking about doing this like its a fool proof strategy. Obviously the data would say otherwise, and its more likely to underperform buy and hold the snp.