The Performance of Options-Based Investment Strategies: Evidence for Individual Stocks from 2004 to 2019

Abstract

Using data from January 2004, through November 2019, we examine the relative performance of four options-based investment strategies versus a buy-and-hold strategy in the underlying stock. Specifically, using ten stocks widely held in 401(k) plans, we examine monthly returns from strategies that include a long stock position as one component. Ignoring early exercise for simplicity, we find that the covered combination and covered call strategies generally outperform the long stock strategy, which in turn generally outperforms the collar and protective put strategies, regardless of the performance measure considered. The outperformance of the covered combination was smallest in the 2015-2019 subperiod. These results also hold for an equally-weighted and a value-weighted portfolios constructed from the ten individual stocks. Our findings suggest that options-based strategies can improve the risk-return characteristics of a long equity portfolio.

Keywords: options, options strategies

JEL Classification: D53,G11