The risk in writing (selling) covered calls is entirely due to the underlying security. If that security is an exchange-traded fund (ETF) tracking the S&P 500, it will be tracking the US economy as a whole, the best-performing economy on the planet in over 100 years.
Wall Street is constantly telling investors that past performance isn’t indicative of future returns. That is true except when it isn’t, which is most of the time. Confucius said: “Study the past if you would define the future.” We should listen to Confucius.
The best (ETF) tracking the S&P 500 is SPY. It is the oldest and largest ETF with the smallest bid/ask spread.
On Mondays, our fearless, intrepid investor writes (sells) covered calls on SPY with a strike price just out-of-the-money, expiry date, Friday of the same week.
Half the time, the weekly decline will be greater than the premium income received during that week. Nevertheless, the premium income will be there every week. Investors can ignore any weekly decline knowing that SPY will recover over the long term, according to Confucius.
In a rising market such as we have had in the pasts few weeks, investors do better by simply holding SPY and NOT writing (selling) covered calls on it.
What will the market do in the near future? The put/call ratio is a fairly reliable indicator.
What will our fearless, intrepid investor do when the market opens today?
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