btoptionbtoptionSelling covered calls turns stock you already own into monthly income. The premium is real and it hits your account every cycle. What's less visible is what you give up in the months the stock rips through your strike. A backtest puts a number on both sides.
Strike selection.
A 20-delta call barely dents your upside but pays little. A 40-delta call pays well and gets your shares called away constantly. Somewhere in between is the balance you can live with — and it shows up clearly when you backtest a few deltas side by side.
Expiration cycle.
Weeklies compound premium faster but demand attention and rack up more assignments. Monthlies are calmer. 45 DTE with an early close is the popular middle ground. Each cadence produces a genuinely different equity curve on the same stock.
What you do when the strike is breached.
Let the shares go? Roll up and out for a credit? Buy the call back and eat the loss? This decision, made a handful of times a year, often matters more than the strike you picked. It’s also the part almost nobody tests before trading it live.
Run the covered call variant against plain buy-and-hold over the same window. In flat and choppy years, the calls usually win — premium in, nothing lost. In strong up years, buy-and-hold tends to pull ahead, sometimes by a lot.
Then look at the drawdowns. Covered calls soften a crash by exactly the premium collected, which is less protection than most people expect. If your reason for selling calls is downside protection, the backtest will probably talk you out of it. If it's income on shares you'd hold anyway, the numbers usually hold up.
Either way: decide from the equity curve and the monthly returns table, not from one good quarter of premium.
Backtest it, then rerun at 20 delta and 40 delta. The comparison between those three curves is the whole covered call decision in one picture.
See what your covered calls would have earned.
Free, deterministic backtest on real historical chain data. Results in about a minute, no account required.
Run the backtest →Covered calls are half of the wheel strategy. For the fundamentals, start with the options backtesting guide.