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This study supports my strategy of selling puts with 2-to-5 month expirations and buying LEAP call options with one year or longer expirations. At fixed 12-month or longer expirations, buying call options is the most profitable, which makes sense since long-term call options benefit from unlimited upside and slow time decay. Table 2 on page 27 of the 2006 study ranks option strategies in descending order of return and selling puts with fixed three-month or six-month expirations is the most profitable strategy. When three-month options are used, written put portfolios for all moneyness levels (OTM, ATM, ITM) generate high returns and exhibit positive abnormal performance. However, some option portfolios exhibit risk-adjusted performance which exceeds that of the benchmark stock-only portfolio. In agreement with previously presented results and prior literature, many option portfolios have risk-adjusted performance worse than the benchmark portfolio.

Jim fink revwes