The instantaneous return and volatility of a covered call position

This article derives and examines the instantaneous return and volatility of a covered call position under standard Black-Scholes dynamics and compares it with that of a long position in the underlying asset. It is demonstrated that the instantaneous volatility and instantaneous expected return of t...

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Bibliographic Details
Published inApplied economics letters Vol. 22; no. 13; pp. 1059 - 1063
Main Author Edwards, Craig
Format Journal Article
LanguageEnglish
Published London Routledge 02.09.2015
Taylor & Francis LLC
Subjects
Applied economics
Assets
covered call
Economic analysis
Economic theory
equity options
instantaneous risk
investment management
Put & call options
Rates of return
Studies
Volatility
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Summary:This article derives and examines the instantaneous return and volatility of a covered call position under standard Black-Scholes dynamics and compares it with that of a long position in the underlying asset. It is demonstrated that the instantaneous volatility and instantaneous expected return of the covered call position are always less than or equal those of being long the underlying asset, while the instantaneous Sharpe Ratios of these two positions are equal.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
content type line 23
ISSN:1350-4851
1466-4291
DOI:10.1080/13504851.2014.1000514