Active QQQ Covered Call Strategies

This study 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 study 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. The study 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. 1 Recent studies that have examined the profitability of covered call strategies hav