The covered combo options strategy is short an out of the money call, short an out of the money put, and going long the stock. You can also think of it as a covered call with a short put. Also, it's a short straddle with long stock.

  • To set up the strategy in the ORATS backtester, start by selecting a short straddle from the neutral options strategies offered.
  • From the additional parameters, select Stock Position Edit 
  • Select Type = Married and Ratio = 1

Note that Overlay would carry a stock position for the entire date range whereas Married only carries stock when there is an options trade on.

 

The results of the default covered combo with 30 days to expiration and 30 delta short strangle + long stock is an average annual return of 13.01% and Sharpe of 0.66

By way of comparison, long stock only returned 11.13% and had a Sharpe of 0.74 since 2007.

A short straddle alone had a return of 4.31% in notional terms (stock price as the divisor not margin as the divisor) and a Sharpe of 0.49.

Other combinations of days and deltas were tested as below. 

 

The assessment of the covered combo is that it adds to returns but sacrifices with additional risk and volatility, leading to a lower Sharpe. 

More reading here...

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