Risk reduction was real—but limited and asymmetric.
Across five controlled experiments, the covered call consistently reduced the probability of a modest short-term loss and lowered ending-value dispersion. The lower tail improved by the premium received, but the underlying stock downside remained largely intact beyond that cushion. Strong rallies could also produce opportunity-cost losses far larger than the premium collected.
Across every tested volatility assumption, the covered call reduced the probability of finishing below the initial account value. The benefit narrowed as volatility increased.
What the experiments found
Loss probability and ending-value dispersion were lower in every controlled sensitivity scenario.
The lower-tail improvement was consistently limited to the option premium.
Larger premiums improved modest-loss statistics but increased assignment and upside opportunity cost.
Mean performance was not uniformly better than buy-and-hold.
The strongest conventional risk benefit appeared in bearish and flat regimes.
What the experiments did not prove
The study modeled one covered call, not a repeated overwrite or rolling program.
It did not use a live option chain, bid-ask spreads, taxes, commissions, dividends, or early exercise.
The simulator's delta values are strike-selection controls, not independently verified market Greeks.
The findings are scenario-dependent and should not be read as investment recommendations.
Read, reproduce, or download the study
The Substack version is designed for general readers. The Zenodo record provides the permanent scholarly citation, while the free simulator lets readers test alternative assumptions.
Permanent DOI:10.5281/zenodo.21329013 Recommended citation: Morrissey, Mark L. (2026). Do Covered Calls Really Reduce Risk? Five Monte Carlo Experiments Using a Free Covered Call Simulator. Version 1.0.
