| Summary: | 碩士 === 國立中興大學 === 財務金融系所 === 99 === Recent research shows that the majority of covered call strategies has slightly higher return and lower volatility than its underlying index. Therefore, Standard and Poor even launched some index funds based on these strategies for investors. We are interested in whether Taiwan capital market has an opportunity to develop the similar strategies and the index funds based on these strategies.
Because the Taiwan Stock Exchange weighted index cannot be traded in the market, we utilize the futures and options on the Taiwan Stock Exchange index to mimic the strategies of covered calls. Our empirical results show that the monthly covered call strategies, while reducing volatility, cannot perform better than the market index benchmark after taking into account transaction costs.
The performance does not improve significantly through technical analysis. Using the negative value of the MACD Bar, MACD, and DIF as the signal of market downside, the covered call strategies have better performance and lower volatility. In addition, we also long the out-of-money put options simultaneously to hedge the downside risk and the performance is also better than other strategies.
Research on the daily covered call strategies shows that simply using TAIEX Taiwan Stock futures and options, although the strategies can reduce the volatility, could not have better return in of the portfolio. However, leveraged futures investment strategy or dynamic adjustment for the start point of the position would increase the overall returns and reduce volatility. Hence, we suggest that Taiwan exchange market can develop similar index funds based on these strategies.
Based on the comparison of the result between bull and bear market conditions, we find that the performance of covered call strategies in bear market is better than the market index and the volatility is also significantly reduced. The reason is mainly due to the put option premium income, which compensates the loss of assets. In contrast, the performance in bull market could be worse than the market. The results provide useful information for investors in Taiwan''s capital market to construct relative covered call strategies.
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