The black swan pays every investor a visit when she decides to show up. If you're fully invested long in the market and the market drops 40%, they your account drops 40%. If you're selling puts that aren't cash covered, well, that's a different story. At least recognize that the study included a few "black swans" and PUT won out, regardless.
I didn't reread the study today but remember also reading PUT outperforms BXM in CBOE website. Do you mean you would buy atm calls and sell atm puts, ie buy a synthetic long ? Because I seem to remember another study that claims monthly synthetic longs outperform both PUT and BXM, but with much higher volatility
Because it . . . does? I brought the PUT index into the discussion to show that as an investing strategy it can be shown to be superior to B&H, CC, etc. in terms of return and volatility. Of course taxes come into play for the individual investor, but those are different situations that can't be normalized. If the original poster uses naked puts to improve his entry position into stocks he is interested, then the short tax concerns are largely inconsequential once he is long and selling calls for that excess return.
Okay. I figured out why the PUT outperforms the BXM. RE: Taxes If he's selling calls he's going to get exercised a lot and each time he does that's a taxable event not on the "outperformance of buy and hold" but on the WHOLE gain. I'm a short vol guy, but one should recognize that selling options isn't a magical outperformance strategy. If it were, then the big guys would be selling options instead of buying them.
I don't think monthly 2% OTM calls are going to get exercised "a lot". They may not bank every time, but if one is willing to manage their positions, then it should be possible to buy the random ITM call back for a loss. At least now you have a loss to leverage against short term gains, and you don't get tagged on the whole gain come April.
Can I make your life a little less complicated? Instead of exerting all this energy and stress into buying this and selling that and rolling this that and the other, take a look at IRONX. It's a mutual fund that sells cash covered puts in ETF's and indices. It makes about 8% to 10% a year. Spend the time with loved ones or use your time more productively. I never understood why so many guys try to invent the wheel.
the entire point of this thread was lost... The guy doesn't wanna become a trader... You know nothing of black swans.. as by definition, you know nothing of black swans... discussing some percentage of moneyness in regards to likelihood of excise is complete randomness...
Please explain the difference in account damage caused by a black swan event when one is (a) long stock (b) long stock with covered calls or (c) short cash covered puts. I'll hang up and listen.
i digress.. i shouldn't have shot back at you , its high jacking the thread.. Maverick makes a good point... a black swan event can never be predicted... such as worlds end.. or a broker going bankrupt etc.. the ideas and thoughts behind covered call and write strategies has been discussed in great detail on this forum... If you wanna manage book of options, your trading! period.. and in this case the guy doesn't wanna actively manage his book.. a short put, is the same thing as a covered call.. limited upside, unlimited downside.. look at the profit graphs for both of them.. long stock is outright better for someone who doesn't want to "trade" as the guy as explained..
I fully understand the P/L graphs. I disagree with your use of the phrase "unlimited downside" -- it's limited to 100% minus premiums generated over time. I also understand the original poster doesn't want to "trade", but he was certainly talking about "trading" up until assignment. I also think the study I linked is HIGHLY instructive in terms of historical performance of various strategies. I fully dispute the idea that naked puts and covered calls are bad mojo, "just because". I realize that conventional wisdom says upside is limited and downside is 100%, but in fact that's NOT true -- stocks SO rarely crash up and downside is LESS limited than long stock. The math proves this out. Returns are juiced and volatility is reduced. Sorry, but I just don't buy it. Higher returns, lower volatility. Sounds good to me. Keep emotion out of it.