The efficiency of the buy-write strategy: Evidence from Australia

Mugwagwa, Tafadzwa; Ramiah, Vikash; Naughton, Tony; Moosa, Imad A.

doi:10.1016/j.intfin.2011.10.001

Cited by 9 publications

(20 citation statements)

References 26 publications

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“…This could be explained by the relatively smaller premiums and lack of liquidity in the majority of Australian call option series beyond 5-OTM. These findings challenge previous research (Jarnecic, 2004;Leggio and Lien, 2002;Mugwagwa et al, 2012; O'Connell and O'Grady, 2014) which claim that writing calls slightly OTM is preferable to deeper OTM calls. However, such performance may be attributable to the market conditions encountered over the holding period.…”

Section: Performance Measurescontrasting

confidence: 85%

“…Also, the TRTH database reveals that option availability of companies outside the S&P/ASX 20 is either limited or non-existent. Mugwagwa et al (2012) andO'Connell andO'Grady (2014) also assert that the majority of the Australian options market is illiquid, with many options series outside the S&P/ASX 20 found to be thinly traded or not traded at all on a daily basis. To ensure that our sample is not plagued by survivorship bias we determine the constituents of the S&P/ASX 20 monthly [8].…”

Section: Methodsmentioning

confidence: 99%

“…It should be recognized that portfolios including covered call writing generally produce non-normal return distributions due to their asymmetric nature. Mugwagwa et al (2012) should not only consider first and second moments (i.e. mean and variance) but also take into account third and fourth moments (i.e.…”

Section: Methodsmentioning

confidence: 99%

“…For instance, covered call writing on US portfolios and indexes has been shown to produce similar returns to the underlying stock with considerably lower standard deviation of returns (Hill et al, 2006;Whaley, 2002). While numerous studies have examined the riskadjusted return performance of covered calls in the United States (US), only a handful of studies have been carried out in an Australian market setting (see El-Hassan et al, 2004;Frino and Wearin, 2004;Jarnecic, 2004;Mugwagwa et al, 2012;O'Connell and O'Grady, 2014) [5].…”

Section: So Does the Covered Call Strategy Add Value For Investors? Amentioning

confidence: 99%

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Are covered calls the right option for Australian investors?

Niblock

Sinnewe

2018

SEF

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Purpose -This paper examines whether superior risk-adjusted returns can be generated using monthly covered call option strategies in large capitalized Australian equity portfolios and across varying market volatility conditions. Design/methodology/approach -We construct monthly in-the-money (ITM) and out-of-the-money (OTM) S&P/ASX 20 covered call portfolios from 2010 to 2015 and employ standard and alternative performancemeasures. An assessment of variable levels of market volatility on risk-adjusted return performance is also carried out using the spread between implied and realized volatility indexes.Findings -Our results show that covered call writing produces similar nominal returns at lower risk when compared against the standalone buy-and-hold portfolio. Both standard and alternative performance measures (with the exception of the upside potential ratio) demonstrate that covered call portfolios produce superior riskadjusted returns, particularly when written deeper OTM. 36-month rolling regressions also reveal that deeper OTM portfolios deliver greater risk-adjusted returns in the majority of the sub-periods investigated. We also establish that volatility spread variation may be a driver of performance for covered call writing in Australia.Originality/value -We suggest that deeper OTM covered call strategies based on large capitalized portfolios create value for investors/fund managers in the Australian stock market and can be executed in volatile market conditions. Such strategies are particularly useful for those seeking market neutral asset allocation and less risk exposure in volatile market environments.

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Section: Performance Measurescontrasting

confidence: 85%

Section: Methodsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Section: So Does the Covered Call Strategy Add Value For Investors? Amentioning

confidence: 99%

See 2 more Smart Citations

Are covered calls the right option for Australian investors?

Niblock

Sinnewe

2018

SEF

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“…The ASX is thus promoting new derivative products that include an equity component. One of these instruments is the buy-write strategy (Mugwagwa et al 2012). In this study, we propose other related products.…”

mentioning

confidence: 99%

The Profitability of Option‐Based Contrarian Strategies: An Empirical Analysis

2015

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Short‐selling restrictions limit investors' opportunities to profit from contrarian strategies in equity markets. We examine the proposition that incorporating options into contrarian strategies constitute a viable alternative to investors when short‐selling restrictions are in place. In particular, we combine equities with the call and put options traded on the Australian Stock Exchange to investigate the profitability of contrarian strategies in the hybrid market and options market alone. We assess the practical issues in the execution of these approaches, including testing for the effects of limited liquidity and transaction costs. We also investigate how fundamental factors (such as dividend yield, firm size, book‐to‐market ratio, earnings per share, price‐earnings ratio, value stocks, and market conditions) affect contrarian portfolios. The results show that employing options can enhance the profitability of contrarian strategies under certain market conditions.

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Kakushadze¹,

Serur²

2018

151 Trading Strategies

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The efficiency of the buy-write strategy: Evidence from Australia

Cited by 9 publications

References 26 publications

Are covered calls the right option for Australian investors?

Are covered calls the right option for Australian investors?

The Profitability of Option‐Based Contrarian Strategies: An Empirical Analysis

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