The year 2022 has unquestionably been a painful one for stock market investors. What first started as a “correction” soon thereafter became a “bear market.” Investment portfolios declined precipitously. Under these circumstances, a consistent covered call options strategy has been able to substantially mitigate the pain otherwise experienced for those investors willing to put in the additional time and effort to add this supplemental, derivative layer to their investment portfolio beyond the traditional underlying equities.
This article describes the options writing process using my own actual experience with the stock of Airbnb (ABNB). This stock has been selected for illustrative purposes because it is generally considered to be a stock with great future growth potential over the long-term but also one that is of a type that has been badly beaten in the current bear market climate, in particular because it is a technology company that is not yet considered to be profitable on a GAAP basis and thus is not as widely favored in a rising interest rate environment. Nonetheless, it has enjoyed periods of favorable market sentiment even during this time because of the secular headwinds in favor of travel companies in a society still reopening after the COVID pandemic. Because it is also a volatile stock, its options premiums are also considered to be elevated. Accordingly, within my own investment portfolio, ABNB has been a stock with a generally declining underlying price that has been offset by substantial options premium. The options premium has been derived mostly through selling covered call options, but cash-secured puts were also sold on a more limited and strategic basis.
In order to use a full one-year period as of the writing of this article, I am using the time period of 11/1/2021 to 11/2/2022 (slightly greater than exactly one year, by two days, because covered call options outstanding by one year were bought to close on 11/2/2022). At the beginning of this time period, I owned 100 shares of ABNB and consistently sold one- to three-month covered call options against that position. During that time period, I also on occasion sold cash-secured put options for ABNB, which on the latter occasion resulted in assignment and thereby caused me to have an additional 100 shares of ABNB, which I then also consistently sold covered call options against (as captured only briefly towards the end of the one-year time period encapsulation). The below chart shows the accumulation of premium from selling (and offset by buying back) covered call options and cash-secured put options for ABNB during this time period, in relation to the unrealized loss in the underlying stock during the same time period.
As shown in this chart, the value in my underlying stock for ABNB has declined by $9,678 during this period, which includes $8,019 for the 100 shares held during the entire one-year period. This translates into a percentage decline of 33.89% for the entire 200 share position, including a decline of 45.92% for the 100 shares held during the entire one-year period. However, $5,408.98 in options premium have been generated through covered calls and $1,174.58 from cash-secured puts, for a total options premium generated of $6,583.56. This amounts to a recovery of approximately two-thirds of the unrealized loss in the underlying stock in the form of premium that is still retained even after the market price of the underlying stock presumably goes on the upswing after the bear market ends. The call option strategy resulted in a net unrealized effective loss of $3,094.44 instead of $9,678, on shares valued at $28,560 as of the start of the period for this case study.
This strategy turned an unrealized one-year period stock loss of 33.89% for all 200 shares into an effective net unrealized one-year period loss of 10.85% (recognizing that both figures are diluted by the late-period acquisition of the second 100 shares of stock). For the initial 100 shares, the options strategy turned an unrealized one-year period stock loss of 45.92% into an effective net unrealized one-year period stock loss of 18.81%. Personally, if I am investing in a bear market where stock prices are consistently in decline, I prefer holding shares of the same stock with the supplemental call writing strategy if that results in an (unrealized) net effective loss of 10.85% as compared to 33.89%, or of 18.81% as compared to 45.92%, for the same stock without the options strategy. (Of course, I would prefer even more that the underlying stock price be increasing rather than decreasing, but that has not been happening for almost all stocks, with very limited exceptions, during this time period.)
In terms of the annual “synthetic dividend” yield provided by the 100 shares of ABNB held during the entire one-year period, $4,735.30 of the covered call option premium were derived from this initial 100 share lot. Over an initial stock investment amount of $17,460, covered call options premium resulted in an annualized “synthetic dividend” yield of 27.12%. Personally, I would prefer an investment approach that results in a 27.12% synthetic dividend yield on a strong growth stock with solid longer-term growth prospects than either 0% for the same stock without the options premium or an approximately average 2% actual dividend yield on a slow-growing legacy industrial stock — at least if the dividend yield amount is being looked at as one of the essential bases for making an investment. (In some investing climates, over certain narrow time frames, well-established dividend-payers may overperform growth stocks, as has happened for much of this year in 2022.)
It should also be pointed out that this effective yield rate is derived from a start price for the underlying stock price that is nearly at ABNB’s 52-week high (and somewhat above where the shares were initially purchased earlier in 2022 before the time period depicted), from which it soon declined precipitously, thereby making the synthetic covered call dividend yield appear to be lower than it probably could be considered. This means that the 27.12% effective yield figure should be considered to be a conservative figure.
| DATE | ACTION TAKEN | AMOUNT GENERATED | STOCK DAILY CLOSING PRICE | TOTAL STOCK PERIOD GAIN/LOSS | TOTAL OPTIONS PERIOD GAIN/LOSS |
| 11/1/2021 | STO Call 185 12/17/21 | 634.34 | 174.60 | 0.00 | 634.34 |
| 12/1/2021 | BTC Call 185 12/17/21 | (209.65) | 163.08 | (1152) | 424.69 |
| 12/2/2021 | STO Call 180 1/21/22 | 719.34 | 169.60 | (500) | 1144.03 |
| 12/17/2021 | BTC Call 180 1/21/22 | (237.65) | 157.91 | (1669) | 906.38 |
| 12/17/2021 | STO Call 175 2/18/22 | 749.34 | 157.91 | (1669) | 1655.72 |
| 1/24/2022 | BTC Call 175 2/18/22 | (246.65) | 147.90 | (2670) | 1409.07 |
| 1/26/2022 | STO Call 155 3/18/22 | 1084.34 | 142.14 | (3246) | 2493.41 |
| 3/4/2022 | BTC Call 155 3/18/22 | (360.65) | 142.70 | (3190) | 2132.76 |
| 3/8/2022 | STO Call 145 4/14/22 | 789.34 | 142.13 | (3247) | 2922.10 |
| 3/28/2022 | BTC Call 145 4/14/22 | (2220.65) | 167.65 | (695) | 701.45 |
| 3/28/2022 | STO Call 150 5/20/22 | 2284.34 | 167.65 | (695) | 2985.79 |
| 5/4/2022 | BTC Call 150 5/20/22 | (1245.65) | 156.18 | (1842) | 1740.14 |
| 5/4/2022 | STO Call 155 6/17/22 | 1349.34 | 156.18 | (1842) | 3089.48 |
| 5/6/2022 | BTC Call 155 6/17/22 | (445.65) | 135.84 | (3876) | 2643.83 |
| 5/11/2022 | STO Call 125 6/24/22 | 1029.34 | 116.15 | (5845) | 3673.17 |
| 5/18/2022 | BTC Call 125 6/25/22 | (340.65) | 108.03 | (6657) | 3332.52 |
| 5/25/2022 | STO Call 115 7/15/22 | 884.33 | 110.40 | (6420) | 4216.85 |
| 6/13/2022 | BTC Call 115 7/15/22 | (292.65) | 98.93 | (7567) | 3924.20 |
| 6/17/2022 | STO Call 100 7/29/22 | 741.33 | 99.49 | (7511) | 4665.53 |
| 6/27/2022 | STO Put 95 8/19/22 | 729.33 | 101.53 | (7307) | 5394.86 |
| 6/30/2022 | BTC Call 100 7/15/22 | (245.65) | 89.08 | (8552) | 5149.21 |
| 7/1/2022 | STO Call 95 8/19/22 | 739.33 | 91.41 | (8319) | 5888.54 |
| 8/3/2022 | BTC Put 95 8/19/22 | (69.65) | 115.02 | (5958) | 5818.89 |
| 8/3/2022 | BTC Call 95 8/19/22 | (1840.65) | 115.02 | (5958) | 3978.24 |
| 8/3/2022 | STO Call 95 9/16/22 | 2009.30 | 115.02 | (5958) | 5987.54 |
| 8/19/2022 | STO Put 111 9/30/22 | 514.34 | 114.76 | (5984) | 6501.88 |
| 9/7/2022 | BTC Call 95 9/16/22 | (1950.65) | 116.07 | (5853) | 4551.23 |
| 9/7/2022 | STO Call 100 11/18/22 | 2024.30 | 116.07 | (5853) | 6575.53 |
| 10/3/2022 | Put 111 Assigned | 105.00 | (6960) | 6575.53 | |
| 10/4/2022 | STO Call 110 11/18/22 | 939.33 | 110.81 | (6398) | 7514.86 |
| 11/2/2022 | BTC Call 100 11/18/22 | (665.65) | 94.41 | (9678) | 6849.21 |
| 11/2/2022 | BTC Call 110 11/18/22 | (265.65) | 94.41 | (9678) | 6583.56 |
As the table above illustrates, the strike prices selected for covered calls varied dramatically over the one-year time period depicted, generally tracking the directional movement of the underlying stock price. The underlying stock price generally went in a downward trajectory but had periods of upward movement, often coinciding with significant “bear market rallies” that ultimately fizzled. The strike prices for the associated options went from a high of 185 to a low of 95 and then back up to 110 by the end of the one-year period depicted in the chart. There were a total of 14 covered call options that were sold, of which 3 were unprofitable or minimally profitable options that were rolled up and/or over. The underlying shares were NEVER called away, and in fact an additional contract for an additional 100 shares of the underlying stock were (intentionally) put to the author through use of short put sales.
It should also be noted that the stock price of the underlying shares underwent an increase AFTER the end period for this one-year assessment, consistent with the post-mid-term election bounce predicted elsewhere on this site, thereby reducing the unrealized loss in the underlying shares and making them more equivalent to gains from trading in the associated call and put options. Nonetheless, the one-year period depicted shown in the chart above has the benefit of showing trading across a wide variety of market conditions while using both short calls and puts where the last closing options trades roughly coincide with a one-year period.
The next case study in this series will focus on one of the rare stocks that have had a substantially increasing underlying stock price during this same approximate one-year time period, depicting how a similar options-writing strategy resulted in additional gains beyond the appreciating stock price. Stay tuned!
Stock Market FIRE.com 
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