Effect of covered calls on portfolio performance

Abstract

This thesis aims to evaluate the performance of a covered call strategy writ- ten on Exchange-traded funds compared to a buy-and-hold strategy of the Exchange-traded fund on the US stock market. The strategy is constructed us- ing at-the-money, two-percent and five-percent out-of-the-money call options. The premium for the former is taken from historical market data and for the latter two calculated using the Black-Scholes-Merton formula adjusted for div- idends. The results further provide a two-period distinction to better account for di erent market periods, namely Covid-19 and the geopolitical conflict in Ukraine. The results fail to show evidence of a significant di erence between a covered call strategy and the buy-and-hold strategy. However, we provide possible applications of the strategy in certain market settings. The perfor- mance is evaluated on the basis of annualized returns and standard deviation, as ratios based on the mean-variance framework are omitted due to possible bias of negatively skewed distribution of returns of the covered call strategy. JEL Classification G10, G11, G12, G13, C02 Keywords Covered calls, ETF, Black-Scholes model, Op- tions pricing, Portfolio performance Title E ect of covered calls on portfolio performance

Cie om tejto práce je zhodnoti v˝konnos stratégie kryt˝ch call opcií vypísan˝ch na fondy obchodované na burze v porovnaní so stratégiou nákupu a drûa- nia dan˝ch fondov na americkom akciovom trhu. Stratégia je zostavená s pouûitím kúpnych opcií at-the-money, dvojpercentn˝ch a pä percentn˝ch out- of-the-money. Prémia pre prvú z nich je prevzatá z historick˝ch trhov˝ch údajov a pre druhé dve je vypo ítaná pomocou Black-Scholesovho-Mertonovho vzorca upraveného o dividendy. V˝sledky alej poskytujú rozlíöenie na dve ob- dobia, aby sa lepöie zoh adnili fluktuácie na trhu, konkrétne Covid-19 a geopol- itick˝ konflikt na Ukrajine. V˝sledky nepreukazujú v˝znamn˝ rozdiel medzi stratégiou kryt˝ch kúpnych opcií a stratégiou nákupu a drûania. Uvádzame vöak, ûe stratégiu je moûné vyuûi v ur it˝ch trhov˝ch podmienkach. V˝kon- nos sa hodnotí na základe anualizovan˝ch v˝nosov a ötandardnej odch˝lky. Metriky zaloûené na rámci strednej odch˝lky sa vynechávajú z dôvodu moûného skreslenia kvôli tomu, ûe v˝nosy stratégie kryt˝ch call opcií majú negatívne zoöikmenie. Klasifikace JEL G10, G11, G12, G13, C02 Klí ová slova Kryté call opcie, ETF, Blackov-Scholesov model, Oce ovanie opcií, V˝konnos port- fólia Název práce Vliv kryt˝ch call opcí na v˝konnost portfo- lia