From 2003-2019, the CBOE S&P 500 BuyWrite Index (an index designed to measure a covered call strategy) outperformed the S&P 500 Index in just four of the 17 calendar years. We chose 2003 because it was the first year of a new bull market. 

From 1926-2019 (94 years), the S&P 500 Index posted an average annual total return of 10.20%, according to Morningstar/Ibbotson Associates.

While covered call options can generate an attractive level of current income, they can also cap the potential for capital appreciation.

The use of a covered call portfolio tends to be most beneficial to investors when the stock market posts down years (2008) and when returns range from 0% to 10% (2007, 2011 and 2015), though the BuyWrite Index did not outperform the S&P 500 Index in 2005 or in 2018.

Covered call writing tends to be less beneficial when stock market returns are above 10%, such as in 2010, 2012, 2013, 2014, 2016, 2017 and 2019 (see table). 

As of 6/9/20, the S&P 500 Index stood 5.29% below its all-time high of 3,386.15 set on 2/19/20, according to Bloomberg. 

Year-to-date through 6/9/20, the CBOE S&P 500 BuyWrite Index lagged the return on the S&P 500 Index by 14.74 percentage points (see table). If you do this comparison using 12/31/19 through 2/19/20 (all-time high for the S&P 500 Index), the S&P 500 Index was only outperforming the CBOE S&P 500 BuyWrite Index by 2.83 percentage points. What changed? The coronavirus (COVID-19) pandemic. 

The pandemic hit hard and moved fast. It took a record low 16 trading days for the S&P 500 Index to plunge into bear market territory (2/19/20-3/12/20). A bear market is defined as a price decline of at least 20% from the most recent peak.

As we now know, the rebound in the stock market has also been brisk. Perhaps too brisk for investors to consider a covered call strategy that would cap their potential upside. This may explain why the CBOE S&P 500 BuyWrite Index is lagging the S&P 500 Index by 14.74 percentage points year-to-date, in our opinion.