howdy amigos, I have been selling covered calls to generate a targeted annual income of \~7-10% of the cost basis invested in shares.
i have considered measuring the risk of selling covered calls by calculating Z-scores of the strike price’s standard deviation from the underlying’s spot price from its implied volatility and the underlying’s historical volatility, then comparing them against the delta of the targeted strike. If the Z-scores are close to the delta, I find the delta reasonable. If the Z-scores are statistically significantly above the delta (>.05), i find the contract potentially risky at that strike.
I’d like to hear your thoughts on this strategy for calculating risk. Of course, this is no substitute for knowing the underlying’s financial position and general market condition, but I‘ve found it a decent way of quantifying risk.