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IS 2% OTM THE SWEET SPOT? In 2006, Goldman Sachs completed a study of the covered call strategy. Their study found that the strategy of writing covered calls on the S&P 500, when compared to simply buying and holding the S&P 500, increased returns and lowered portfolio volatility. The results of the study are shown below: Goldman compared the return of the S&P500 with that of BXM (CBOE S&P 500 Buy Write Index) as well as three of their own Buy Write strategies. You can see that a strategy of selling 2% out-of-the-money calls yielded the highest return and the volatility (as measured by standard deviation) was lower for all covered call strategies.
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