To summarise, the call overwriting strategy outperforms the market in times of falling, stable or mildly rising equities (the green and orange hashed zone in the graph on the previous page), and underperforms it in times of strongly performing equities (red hashed zone). It is interesting to note however that, even in an underperforming scenario, this strategy results in an absolute gain for the fund manager, albeit a lower one than would have been achieved without entering into the call overwriting strategy.
Note that in periods of high volatility the premiums received from the sold options will be greater. This means the strategy can outperform even if there is strong performance, as long as the premiums received for the sale of the options is high enough. Therefore these strategies benefit from volatile periods but perform less well when markets are calmer and option prices fall.
Variants have been developed on the basic strategy described above. A common feature is to use some of the proceeds from the sale of call options to purchase put options, offering a degree of protection on the downside in times of strongly bearish markets. Another variant involves the sale of call options on only a portion of the amount of shares owned, allowing for some degree of exposure to the upside performance of the share.
Finally, buy-write indices are now commonly available on most of the major equity indices. These indices simulate the return that would be achieved from performing a call overwriting strategy on a continuous basis on the underlying equity index.