The instantaneous return and volatility of a covered call position

Craig Edwards

Applied Economics Letters, 2015, vol. 22, issue 13, 1059-1063

Abstract: 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.

Date: 2015
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DOI: 10.1080/13504851.2014.1000514

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