Dear nronronronro,
Thanks for your question. First, let me request that if any of the
following is unclear or if you require any further research – please
don’t hesitate to ask me for a clarification.
I have a friend who is retired and basically makes a pretty decent,
relatively risk-free living writing covered calls on his portfolio.
So, I can definitely appreciate the value of the strategy you are
trying to promote to your clients.
Having scoured the Web for relevant articles, I’ve come up with the
following - if you would like, I could expand the search beyond what
is accessible on the Web, but the results may necessitate that you
travel to your local library to retrieve the actual articles. In the
mean time, some of these are pretty good.
First, what seems to be a transcript for a class from the Fuqua school
at Duke – this was written by professors Alon Brav, Campbell R.
Harvey, Ernst Maug and Stephen Gray in 1997 – see especially pages
11-12 – wonderful and simple application; also includes a couple of
graphs, and touches on many other aspects of options trading –
http://faculty.fuqua.duke.edu/~charvey/Teaching/BA456_2003/Options_Brav_Gray_Harvey_Maug.pdf
Another good introduction to various trading strategies, including
covered calls, in mostly laymen terms, is provided by Professor Chance
of the Pamplin College of Business at Virginia Tech –
http://www.cob.vt.edu/finance/faculty/dmc/Courses/TCHnotes/Tn97-10.pdf
Prof. Chance also wrote the following article, which I have found to
be widely used in MBA classes – “Misconceptions About Covered Call
Writing” -
http://www.cob.vt.edu/finance/faculty/dmc/derivs/Essay34.pdf
Business Week published “Taking Cover with Covered Calls – Selling
Options Can Generate Extra Income On Your Portfolio” in 2001; it’s
available online at –
http://www.businessweek.com/magazine/content/01_21/b3733128.htm
Note also the graphic on protection and potential –
http://www.businessweek.com//magazine/content/01_21/art01_21/a21mac95.gif
And another good, relevant BW article – “Option Plays for the Faint at
Heart” (well, maybe not the way you want to present this to your
clients…)
http://www.businessweek.com/bwdaily/dnflash/jun2001/nf20010615_144.htm
Finally, if you can access the Wall Street Journal Online, here’s
another good, relevant article that may help:
Tan, Kopin. "Covered Calls Grow in Popularity As Stock Indexes Remain
Sluggish", The Wall Street Journal, April 12, 2002. p. C11
Excerpts:
“Michael Urias and Peter Fanelli, who co-head Morgan Stanley's
quantitative strategies group, have noted more interest from money
managers looking to devise "covered call writing" strategies, where an
investor sells call options against stock he buys or already holds.”
And…
“"a range-bound market is a call sellers' market," said Michael
Schwartz, CIBC Oppenheimer's chief options strategist.”
“the Chicago Board Options Exchange launched a benchmark to help
investors track potential returns from such covered call-writing”
(it’s called BXM)
Another article by Kopin Tan is:
Tan, Kopin. "Popular Strategy Eased the Pain of a Tough Year for
Investors." Wall Street Journal. Dec. 31, 2002.
Information about BXM:
CBOE prospectus on BXM:
http://www.cboe.com/LearnCenter/pdf/explorebxm.pdf
BXM CBOE site:
http://www.cboe.com/micro/bxm/index.asp
Good references not available for free online:
Cox, John C., Ross, Stephen A., and Rubenstein, Mark, "Option Pricing:
A Simplified Approach", Journal of Financial Economics, (1979) pp.
229-263.
Rendleman, R. "Option Investing from a Risk-return Perspective."
Journal of Portfolio Management, May 1999, pp. 109 - 121.
Stux, Ivan, and Peter Fanelli. "Hedged Equities as an Asset Class."
Morgan Stanley Research Paper (1990).
*** Tsu, Maria. "Writing Covered Calls to Enhance Returns on U.S.
Stocks." Goldman Sachs Research Paper (1997).
Whaley, Robert. "Derivatives on Market Volatility: Hedging Tools Long
Overdue," Journal of Derivatives, 1994, pp. 71-84.
Whaley, Robert. "Risk and Return of the CBOE BuyWrite Monthly Index"
The Journal of Derivatives (Winter 2002) pp. 35 - 42.
I hope this response adequately addresses your request. Please let me
know if you are in need of additional information concerning this
query.
Thanks,
ragingacademic-ga
Additional Links:
Good, intuitive introduction to the concept of options, also from Duke
–
http://faculty.fuqua.duke.edu/~charvey/Teaching/BA456_2003/Identifying_real_options.htm
Tax tips for covered call writers (see page 4)
http://www.sectorvue.com/sv/tos1022.pdf
Search Strategy:
"writing covered calls" .pdf .edu
related:faculty.fuqua.duke.edu/~charvey/Teaching/BA456_2003/Options_Brav_Gray_Harvey_Maug.pdf
"covered calls" .pdf .edu |
