Covered calls vs just holding: the honest comparison
Cboe has published a covered call index since 1986. It buys the S&P 500 and sells an at-the-money call against it every month. Over the ten years to August 2026 it returned 7.91 percent a year. The S&P 500 with dividends returned 15.50 percent. That gap is the cost of capping your upside, measured.
This is the page a site selling a covered call app has the least incentive to write. It is also the one that decides whether anything else here is worth believing, so here are the numbers.
The data
The Cboe S&P 500 BuyWrite Index (BXM) holds the S&P 500 and writes a one-month at-the-money call against it, every month, mechanically. It is the cleanest long-run record of a covered call strategy that exists. Compared against the S&P 500 Total Return Index over the same periods, read on August 4, 2026:
| Period | BXM (covered call) | S&P 500 total return |
|---|---|---|
| 1 year | 19.28% | 23.69% |
| 5 years | 8.76% | 13.56% |
| 10 years | 7.91% | 15.50% |
| 15 years | 8.13% | 15.32% |
Ten years of systematically selling covered calls on the S&P 500 produced roughly half the return of doing nothing. Over fifteen years, the same. This is not a bad decade cherry-picked. It is the whole record of the last decade and a half.
Three things the table does not say
1. BXM writes at-the-money calls, which is the most aggressive version. An at-the-money call caps you at roughly today's price, so BXM gives up essentially all upside every month in exchange for a fat premium. Almost nobody sells covered calls that way. The common approach, and the one this site recommends, is 0.20 to 0.30 delta, which caps far less. Cboe publishes a 30-delta version of the index, and its long-run record is better than BXM's. Treat the table above as the pessimistic bound on the drag, not the expected one.
2. The last decade was the worst possible regime for this strategy. Covered calls underperform in strong, steady bull markets, which is exactly what 2016 to 2026 was. They do relatively better in flat and choppy markets, and they cushion mild declines. A strategy that gives up upside will look terrible in a decade that was almost all upside.
3. Return was never the pitch. BXM's argument has always been similar returns with lower volatility and shallower drawdowns. Over some long windows it has delivered close to index returns with meaningfully less turbulence. If your objective is a smoother ride and steady income rather than maximum terminal wealth, the comparison is not the indictment it first appears to be.
What it does prove
That the upside cap is expensive and the cost is not small, not theoretical, and not something the premium reliably makes up. Anyone telling you covered calls are free income on shares you already own is either not looking at this data or hoping you will not.
If you hold a stock because you believe it multiplies, writing calls against it is working directly against your thesis. The premium will not come close to compensating you for the move you capped.
So when does it make sense
- You want income from shares you already intend to hold, and you accept lower total return to get it. This is the honest case, and it is a perfectly good one.
- You think a position is fully valued but you do not want to sell it outright. A covered call is a way to be paid while you wait, and being assigned is an exit at a price you chose.
- You want a smoother equity curve more than you want the highest ending number.
- You are writing on a position you would trim anyway. Then the cap costs you nothing you wanted.
And when it does not: on your highest-conviction growth position, in a taxable account with a large embedded gain, or anywhere you would be genuinely upset to be assigned.
Measure your own
The general case is not your case. What matters is whether your covered calls beat holding your shares, and that is a question about your positions over your holding period. Almost nobody tracks it, because the loss is invisible: your account shows premium collected and never shows the upside you capped.
Recording the benchmark alongside the premium is the only way to find out, and it is why the OptionsKing ledger reports what a position returned against simply holding the shares, losers included. OptionsKing scores every candidate strike on a deterministic 0 to 100 scale and shows you nothing below 60, at any setting, with 75 the recommended bar. How it works covers what that guarantees.
Index returns above were read on August 4, 2026 from published index data for BXM and the S&P 500 Total Return Index. Index performance is hypothetical, cannot be invested in directly, and is not a prediction of what any strategy will return in future.
Questions people actually ask
Do covered calls beat buy and hold?
Over the last ten and fifteen years, no, and not by a small margin. The at-the-money Cboe BuyWrite index returned about half the S&P 500 total return over both windows. Covered calls trade upside for income and smoother returns, not for higher returns.
Does the comparison change if I sell further out of the money?
Yes, materially. BXM sells at-the-money calls, which caps almost all upside. Selling 0.20 to 0.30 delta caps far less and closes much of the gap, at the cost of collecting less premium.
Are covered calls safer than owning the stock?
Marginally. The premium offsets a small part of a decline and nothing more. On the running example the cushion was 0.87 percent. It is income, not protection.
Keep reading
Do the math on your own trade
Every price in this article is an illustrative worked example, not a quote. Read Covered calls for the rest of the series, and the disclaimer before you act on any of it. Selling options carries real risk of loss, and the loss can be far larger than the premium you collected.