Three Options Strategies Backed by Decades of Research

Options trading is often thought of as complex, opaque, or overly speculative. But beneath the noise and sensationalism lies a body of serious research, spanning decades, that quietly validates the practical use of a handful of core strategies. These are not theoretical models or market myths. They are evidence-backed approaches tested across market cycles, asset classes, and volatility regimes.

This report highlights three such strategies: covered calls, cash-secured puts, and protective collars. Each has been studied extensively by academics and institutions. Each offers distinct strengths. And each has demonstrated the ability to improve consistency, reduce volatility, or enhance income, often with lower risk than buy-and-hold equity positions alone.

The goal here is not to oversell or simplify what remains a risk-bearing endeavor. Every options trade involves trade-offs. But with the right framework, grounded in data and experience, traders and investors alike can apply these strategies thoughtfully, using them not as silver bullets, but as tools to construct more resilient portfolios.

What follows is a plain-language synthesis of that research, carefully interpreted, practically framed, and respectfully delivered.

Strategy #1: Covered Calls (Buy-Write Strategy)

Academic Source:

• "Risk and Return Characteristics of the BuyWrite Strategy on the S&P 500 Index" – Callan Associates & Prof. Robert E. Whaley (Cboe, 2006)

• Read the full study

What the Research Found

Over an 18-year period, a systematic buy-write strategy, owning the S&P 500 and selling at-the-money calls each month, generated returns that were comparable to the total return of the index, but with lower volatility. It provided better risk-adjusted returns (measured by Sharpe ratio) and smaller drawdowns during periods of heightened market stress.

The consistency came not from outsized wins, but from the steady contribution of premium income, which helped buffer losses and smooth volatility over time.

Plain Language Explanation

A covered call is one of the most straightforward options strategies. It involves two components:

• Owning a stock or ETF

• Selling a call option on that asset (typically one month out, at or slightly above the current price)

By selling the call, you agree to sell your shares at the strike price if the option is exercised. In exchange, you collect a premium.

If the stock stays flat or declines, you keep the premium, which cushions the downside. If the stock rises moderately, you earn gains up to the strike price plus the premium. If it rallies significantly, your upside is capped, but the premium still adds to your return.

Real-World Application

Covered calls work well in stable or modestly bullish markets. For instance, imagine holding an index ETF. If it’s trading at $450, you might sell a one-month $460 call for $2. If your ETF stays below $460, you keep the ETF and the $2 premium. If it exceeds $460, your shares may be called away at a profit.

The key is to think in terms of probabilities and trade-offs. You give up some potential future upside in exchange for income now. That income compounds, and over time, especially during sideways or volatile markets, it adds meaningful value.

While covered calls aren’t designed to outperform strongly trending bull markets, they’ve shown an ability to reduce volatility and increase consistency. For risk-conscious investors, that’s worth noting.

What about Poor Man’s Covered Calls? Poor Man’s Covered Call vs. Covered Call: Which Strategy Is Better?

Strategy #2: Cash-Secured Puts (PutWrite Strategy)

Academic Source:

• "Understanding the Performance of the CBOE S&P 500 PutWrite Index" – Prof. Oleg Bondarenko (2014)

• Read the full study

What the Research Found

The CBOE PutWrite Index (PUT) systematically sells one-month at-the-money puts on the S&P 500 and holds cash to secure potential assignments. Over a multi-decade period, this strategy delivered returns comparable to the index with significantly lower volatility.

Importantly, the reduced volatility led to a higher Sharpe ratio. Much of the strategy’s success was attributed to the persistent gap between implied volatility and realized volatility, known as the volatility risk premium.

Plain Language Explanation

Selling a cash-secured put means you’re agreeing to buy a stock at a certain price (the strike), and in exchange, you get paid a premium. You must have the cash set aside in case you’re assigned.

If the stock stays above the strike, the option expires worthless, and you keep the premium. If the stock falls below the strike, you may be assigned, meaning you buy the stock at that agreed price. But since you collected a premium, your actual cost basis is lower.

It’s a way to be paid while waiting to buy a stock at a lower price.

Real-World Application

Suppose you’d like to own shares of a company, but only if the price drops. Rather than placing a limit order, you sell a put at your target entry price and collect a premium. If the stock never falls, you keep the premium. If it does, you own the stock at a discount.

This strategy turns patience into income. And when applied systematically, on indexes or diversified equities, it has historically produced steady returns with a risk profile similar to equity ownership but with reduced downside due to the offsetting income.

Of course, there is still downside risk. If the market drops sharply, you can incur losses just as if you owned the stock. That’s why it’s essential to treat this strategy with care, appropriate position sizing, and a strong understanding of your risk tolerance.

Want to learn more about cash-secured puts?

Strategy #3: Protective Collars - Defined Risk for Uncertain Markets

Academic Source:

• "Loosening Your Collar: Alternative Implementations of QQQ Collars" – Szado & Schneeweis, 2010

• Read the full study

What the Research Found

This study examined a passive collar strategy on the Nasdaq-100 ETF (QQQ) during a volatile period from 1999 to 2009, encompassing two major market crashes. The collar strategy not only protected against the large drawdowns that characterized the decade, but it also generated a higher cumulative return than the ETF itself.

Volatility was substantially lower, and drawdowns were far less severe. This strategy proved especially effective during turbulent markets, making it a potentially valuable tool for long-term investors concerned about capital preservation.

Plain Language Explanation

A collar combines three components:

1. Long stock (or ETF)

2. Long protective put (establishes a floor)

3. Short call (caps the upside, but helps pay for the put)

In essence, you build a bracket around your stock. The put provides insurance against large losses, while the call offsets the cost of that insurance. You give up some upside, but in return, you reduce downside significantly.

It’s a trade-off many investors find worthwhile, especially in volatile markets or when managing large, concentrated positions.

Real-World Application

Imagine you own shares of a volatile stock. You’re concerned about a market pullback, but you don’t want to sell. You buy a put option to protect against sharp declines. To make that put more affordable, you sell a call option above the current price.

Now, if the stock crashes, the put gains value and helps offset your losses. If the stock rallies, your gains are capped, but you’ve earned income and maintained a disciplined risk framework.

The collar is often used by institutional investors, corporate insiders, and conservative traders who prioritize capital protection. It can be held through market cycles, adapted as market conditions change, and used as a dynamic hedging tool.

Importantly, the collar is not about maximizing gains. It’s about managing outcomes and protecting your capital, especially during periods of uncertainty.

Want to learn more about collars?

Probabilities over predictions,

Andy Crowder

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