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The instantaneous return and volatility of a covered call position

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  • Craig Edwards

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.

Suggested Citation

  • Craig Edwards, 2015. "The instantaneous return and volatility of a covered call position," Applied Economics Letters, Taylor & Francis Journals, vol. 22(13), pages 1059-1063, September.
    • Handle: RePEc:taf:apeclt:v:22:y:2015:i:13:p:1059-1063
    DOI: 10.1080/13504851.2014.1000514
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    Cited by:

    1. Wei-Han Liu & Jow-Ran Chang & Guo-Jun Yang, 2024. "An improved criterion for almost marginal conditional stochastic dominance," Review of Quantitative Finance and Accounting, Springer, vol. 62(3), pages 1251-1290, April.

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