Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JOD
    • Editorial Board
    • Published Ahead of Print (PAP)
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

User menu

  • Sample our Content
  • Request a Demo
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Derivatives
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Request a Demo
  • Log in
The Journal of Derivatives

The Journal of Derivatives

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JOD
    • Editorial Board
    • Published Ahead of Print (PAP)
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

The “Superior Performance” of Covered Calls on the S&P 500: Rethinking an Anomaly

Robert Brooks, Don Chance and Michael Hemler
The Journal of Derivatives Winter 2019, jod.2019.1.087; DOI: https://doi.org/10.3905/jod.2019.1.087
Robert Brooks
is a professor at the Culverhouse College of Business, University of Alabama, Tuscaloosa
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
Don Chance
is a professor at the E. J. Ourso College of Business, Louisiana State University, Baton Rouge
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
Michael Hemler
was an associate professor of Finance at the University of Notre Dame’s Mendoza College of Business, South Bend, Indiana.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Click to login and read the full article.

Don’t have access? Click here to request a demo 

Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
UK: 0207 139 1600

Abstract

This study shows that previous findings of the superior performance of covered calls on the S&P 500 are spurious because they ignore or dismiss skewness. While academics have previously identified this problem, the financial industry has largely ignored it. The authors show how the problem manifests in that traditional performance measures used in other studies show superior performance even with correctly priced options. They present two new estimates of covered call alphas—one that embeds a benchmark and the other that subtracts the benchmark—and find little basis for these prior claims. The authors also identify a bias in previous studies in which the chosen holding period disguises the effect of skewness. Their results, which are supported in both monthly and daily data, are consistent with intuition that holding the index and selling these widely traded options cannot generate alpha, as has been highly promoted in several practitioner articles.

TOPICS: Options, performance measurement, exchange-traded funds and applications

Key Findings

  • • The documented abnormal performance of covered call writing is largely driven by disregard of skewness.

  • • There are simple measures that can adjust the alpha of an option strategy for skewness.

  • • The positioning of the holding period during the expiration month can disguise the problem.

  • © 2019 Pageant Media Ltd
View Full Text

Don’t have access? Click here to request a demo

Alternatively, Call a member of the team to discuss membership options

US and Overseas: +1 646-931-9045

UK: 0207 139 1600

Log in using your username and password

Forgot your user name or password?
Next
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Derivatives: 28 (2)
The Journal of Derivatives
Vol. 28, Issue 2
Winter 2020
  • Table of Contents
  • Index by author
  • Complete Issue (PDF)
Print
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Derivatives.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
The “Superior Performance” of Covered Calls on the S&P 500: Rethinking an Anomaly
(Your Name) has sent you a message from The Journal of Derivatives
(Your Name) thought you would like to see the The Journal of Derivatives web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
The “Superior Performance” of Covered Calls on the S&P 500: Rethinking an Anomaly
Robert Brooks, Don Chance, Michael Hemler
The Journal of Derivatives Oct 2019, jod.2019.1.087; DOI: 10.3905/jod.2019.1.087

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
The “Superior Performance” of Covered Calls on the S&P 500: Rethinking an Anomaly
Robert Brooks, Don Chance, Michael Hemler
The Journal of Derivatives Oct 2019, jod.2019.1.087; DOI: 10.3905/jod.2019.1.087
del.icio.us logo Digg logo Reddit logo Twitter logo CiteULike logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
    • Abstract
    • BRIEF REVIEW OF PREVIOUS FINDINGS
    • DATA
    • EMPIRICAL RESULTS
    • CONCLUSION
    • ACKNOWLEDGMENTS
    • ADDITIONAL READING
    • ENDNOTES
    • REFERENCES
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

Similar Articles

Cited By...

  • No citing articles found.
  • Google Scholar
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 139 1600
 
NEW YORK
41 Madison Avenue, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

MORE FROM PMR

  • Home
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Log In
  • Update your profile
  • Give us your feedback

© 2021 Pageant Media Ltd | All Rights Reserved | ISSN: 1074-1240 | E-ISSN: 2168-8524

  • Site Map
  • Terms & Conditions
  • Privacy Policy
  • Cookies