Covered call strategy

Checked October 2026

A covered call owns the shares and sells a call against them, giving up the gain above the strike for a monthly premium. Backtoast ran two Cboe versions on the S&P 500. The 30-delta call made 10.8% a year and the at-the-money call made 8.8% a year, and both failed. A higher return is not a pass.

Backtoast

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Covered call strategy

Both sell a one-month call on the third Friday, hold it to expiry with no target and no stop, and sell the next one at that close. A falling month hurts almost as much as owning the shares, because the premium is small next to a real drop.

30-delta

This is Cboe's 30-delta buy-write, BXMD. The call sits a few percent above the index, so the shares keep the first few percent of a rally, and the premium is smaller.

At the money

This is Cboe's BuyWrite, BXM. The call sits at the index, so the whole month's upside is sold for the biggest premium, and a rally month earns the premium and nothing more.

A cash secured put strategy at the same strike has close to the same payoff without owning the shares, and a collar strategy adds a put under the shares.

Where it comes from

Cboe publishes both rules in one methodology for its buy-write indexes. Its fact sheet has BXM at 8.7% a year and BXMD at 10.6% from 1986 to 2019, against 10.4% for the S&P 500, which made BXMD the top index on the sheet. The runs used SPY in place of SPX, from late 2021 to the end of 2025, and didn't credit SPY's dividends, roughly 1.3% a year.

Both runs are Backtoast's, from 29 October 2026, after costs.