Sutcliffe, C. and Board, J.
The performance of covered calls and protective puts , Southampton, UK University of Southampton 27pp.
(Discussion Papers in Accounting and Management Science, 95-105).
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Covered calls and protective puts are amongst the most popular options trading strategies, and their performance has been the subject of a large number of empirical investigations. This paper argues that whether or not such strategies raise or lower the expected return of the investor depends on the values of a number of forecast parameters, and so is uncertain when the position is initiated. Thus, however many previous empirical studies have been conducted, they are not definitive. In fact, these studies have shown that, in practice, covered calls and protective puts can generate both profits and losses. However, such strategies do lower the variance of returns, and this is supported by the previous studies. Of course, in the context of financial instruments such as options, the variance may not be an appropriate measure of risk
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