No. of Recommendations: 1
IF the stock price fluctuations are random, log-normally distributed, AND the options are Black-Scholes priced, AND there is zero friction: no bid-ask spread on options prices, no fees for transactions, THEN the expected return from covered calls is precisely zero!
I think this is about right. But Black-Scholes does not account for valuation. The stock price in the future is just assumed to be today's price plus a log-normal random variable.
If you accept that the today's valuation has some predictive value for the stock price a few months out then you can gain an edge.
And, you don't have to be always right. Just mostly right.
