Covered Calls Are Dumb in a Bull Market

Corona Del Mar, CA

Howdy Friend!

I know the headline may ruffle a few feathers.

Good.

Because every bull market, a bunch of perfectly intelligent people do something so backwards it ought to come with a warning label, a helmet, and a complimentary juice box.

They buy a great stock.

They get a bull market.

They finally catch a real move.

And then they sell a covered call against it so they can collect a little premium income…

…right before the stock takes off like a mouse strapped to a bottle rocket.

Congratulations, partner. You just sold the good part.

That is the part nobody wants to say out loud about covered calls.

They sound responsible. They sound conservative. They sound like something a careful investor does while wearing readers, drinking black coffee, and saying things like, “I’m just generating income on my holdings.”

But in a bull market, covered calls can turn a good trade into a lopsided mess.

Because the downside is still sitting there like a tax bill with teeth.

But the upside?

You sold it.

That is not the kind of asymmetry you want.

The whole point of intelligent trading is to get asymmetry working for you, not against you. You want small, controlled risks and the ability to participate when the market gives you a real move.

Covered calls often do the opposite.

They give you a little premium today, then cap the big move tomorrow.

It’s like buying a Lambo and selling the engine for gas money.

And before someone says, “But Dan, covered calls lower volatility,” yes, they can.

That is not the argument.

The argument is whether you want to cut the head off your winners in a rising market.

Even the boring official options people admit this. The Options Industry Council says the covered call writer is looking for a steady or slightly rising stock, and that this strategy is not appropriate for a very bullish investor.

Translation: if you think the market may rip, covered calls are probably the wrong tool.

Cboe’s own buy-write research says the same basic thing. A monthly buy-write strategy collects premium income, but the upside gets truncated when the option is exercised. Therefore, the strategy may be expected to outperform stocks in bear markets and underperform stocks in bull markets.

That is not me ranting with a cup of coffee and a suspiciously large tinfoil hat.

That is the actual research.

S&P Dow Jones Indices and Cboe looked at the Cboe S&P 500 BuyWrite Index, which is basically a rules-based covered call strategy on the S&P 500.

From 2000 through 2025, in years when the S&P 500 rose more than 10%, the buy-write index underperformed by an average of 9.3%.

That is a huge chunk of dumb tax to pay.

You got some income.

You got less volatility.

And in strong bull years, you gave up a huge chunk of the move.

Now, to be fair, covered calls can look decent in sideways, modest, or ugly markets. That is why people keep selling them. There are even studies showing certain covered call approaches can improve risk-adjusted returns over selected periods.

Fine.

But that does not make them magic. An good luck to the average investor trying to predict when it's going to be a sideways or bear market. They're terrible timers.

And when the market is running, a covered call can be the leash you clipped onto your own racehorse.

At Portfolio Boss, we are not interested in cute little income tricks that feel good until the market starts moving.

We are interested in proven edges.

Base hit after base hit.

Strategy after strategy.

Not one fragile idea.

Not one guru guess.

Not one “I saw this on YouTube and the guy had a whiteboard” trading plan.

The bread and butter of Portfolio Boss is multi-strategy trading: stacking tested strategies together so you are not depending on one brittle trick to carry the whole account.

That is what I have worked on for years.

And we are about to make this very public…

Soon, we are launching the $10,000 Portfolio Boss Trading Challenge.

This is for people who are into proven trading strategies, especially multi-strategy trading.

The idea is simple:

Bring the strategies.

Track the results.

Then let the evidence do the talking.

The strategies entered into the challenge will be completely out-of-sample. Then we can follow them through the rest of the year as further proof of what I have been saying for years:

The market does not reward clever-sounding ideas.

It rewards edges that survive testing.

That is why I spend so much time beating up bad trading ideas.

– Covered calls in a bull market.

– Fibonacci fairy dust.

– Chart-pattern bedtime stories.

– Trend line scribbles.

– Headline guessing.

– Guru prophecies.

All of it has to be dragged out into the sunlight and tested. One by one, they dissolve away like a vampire out for a morning jog.

Because once you stop worshipping clever ideas…

You can finally focus on what actually works.

More details on the $10,000 Portfolio Boss Trading Challenge are coming soon.

And if you are tired of trading opinions, income gimmicks, and Wall Street comfort food…

You are going to like what we are about to prove.

P.S. Covered calls are not evil. They are just usually sold to people as if “income” automatically means “smart.” It does not. In a strong bull market, selling away your upside can be one of the most expensive little checks you ever cash.