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Active QQQ Covered Call Strategies

David P. Simon
The Journal of Alternative Investments Winter 2014, 16 (3) 25-36; DOI: https://doi.org/10.3905/jai.2013.16.3.025
David P. Simon
is a professor in the Finance Department at Bentley University in Waltham, MA.
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  • For correspondence: dsimon@bentley.edu
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Abstract

This article examines QQQ covered call strategies from January 2002 through January 2012 and finds that downside risk-adjusted returns are attractive both on an absolute basis and relative to those of long QQQ positions. The study then presents a framework that partitions covered call positions into delta neutral short call and long equity positions, which highlights the separability of decisions about delta neutral short option and long equity exposure within a broader class of short call strategies that includes covered calls. The author then demonstrates that selling QQQ call options and buying QQQ shares on a delta neutral basis both without and with delta rebalancing offers attractive risk?reward tradeoffs. He then constructs out-of-sample implied volatility fitted values and examines the performance of covered call and delta neutral short call strategies when estimates indicate that implied volatility is more overpriced than usual. These conditions substantially enhance the performance of covered call strategies as well as short delta neutral call strategies.

TOPICS: Options, statistical methods, performance measurement

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The Journal of Alternative Investments: 16 (3)
The Journal of Alternative Investments
Vol. 16, Issue 3
Winter 2014
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Active QQQ Covered Call Strategies
David P. Simon
The Journal of Alternative Investments Dec 2013, 16 (3) 25-36; DOI: 10.3905/jai.2013.16.3.025

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Active QQQ Covered Call Strategies
David P. Simon
The Journal of Alternative Investments Dec 2013, 16 (3) 25-36; DOI: 10.3905/jai.2013.16.3.025
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  • Article
    • Abstract
    • THE PERFORMANCE OF PASSIVE QQQ COVERED CALL STRATEGIES
    • A FRAMEWORK FOR ASSESSING COVERED CALL STRATEGIES
    • ACTIVE STRATEGIES BASED ON ESTIMATES OF THE VOLATILITY PREMIUM
    • SUMMARY AND CONCLUSIONS
    • ENDNOTES
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