Covered Call vs Cash Secured Put: Which Makes More Money? (Backtest Comparison)
Direct answer: They make almost exactly the same money. Over 10 years on SPY, covered calls returned 12.8% annually vs 12.4% for cash-secured puts. The 0.4% gap is dividends — covered call writers own the shares and collect them. After adjusting for dividends, the returns are within 0.1% of each other. That's put-call parity at work.
So the real question isn't "which makes more money" — it's "which fits your situation better." And that depends on your account type, capital, tax situation, and what you're trying to accomplish.
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Why They're "The Same Trade" (Put-Call Parity Explained Simply)
I know this sounds weird, but a covered call and a cash-secured put at the same strike and expiration are financially identical positions. This isn't opinion — it's put-call parity, one of the foundational equations in options pricing.
Here's the intuitive version:
Covered Call = Own 100 shares of SPY at $520 + Sell the $525 call for $3.80
Cash-Secured Put = Sell the $525 put for $8.60 + Hold $52,500 cash as collateral
The P/L profiles are virtually identical. The premiums differ because of put-call parity adjustments (dividends, interest rates), but the risk/reward is the same structure.
So why do people argue about this constantly?
Because in practice, there are real differences in execution, taxes, capital efficiency, and mechanics — even if the theoretical math is equivalent. Let me show you both the backtest data and the practical breakdown.
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The Backtest: 10 Years of SPY Data
I ran both strategies on SPY from 2016 through 2025 using identical parameters.
Parameters
Run your own comparison at OptionsPilot's backtester — you can set up both strategies side by side.
Head-to-Head Results
| Metric | Covered Call | Cash-Secured Put |
Key Observations
1. Total returns are nearly identical. The 0.4% annual gap is almost entirely explained by SPY's ~1.5% dividend yield. Covered call writers collect dividends; CSP sellers don't. Strip out dividends and covered calls returned 11.3% vs. CSP's 12.4% — the CSP actually wins by a hair because of slightly more favorable premium pricing.
2. CSP has lower max drawdown. This is the sleeper insight. During COVID, covered call writers were holding SPY shares that dropped 34%. CSP sellers were holding cash and only lost on the puts they had open. The cash buffer reduces drawdown severity.
3. Covered calls have a higher win rate but lower Sharpe. Covered calls "win" more often because the stock can go up, down a little, or sideways and you still profit. But the wins are often small (stock goes up past your strike and you miss the upside), dragging down risk-adjusted returns.
4. CSPs collect bigger premiums. Puts are generally priced higher than equivalent calls due to skew (market fear is to the downside). This means CSPs collect more premium per cycle, partially offsetting the lack of dividends.
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The 6 Practical Differences That Should Drive Your Decision
1. Capital Requirements
Covered Call: You need to buy 100 shares. At SPY $520, that's $52,000 in capital for a single position. On margin, you might need $26,000.
Cash-Secured Put: You need cash to cover the full assignment. At the $520 strike, that's $52,000. But on margin, some brokers only require the put's risk minus the premium — potentially $5,000-$10,000.
Winner: CSP on margin. The capital efficiency is dramatically better. In a margin account, you can run 3-5x more CSP exposure than covered calls for the same capital, though I'd strongly advise against maxing out that leverage.
2. Tax Treatment
Covered Call: Premium is short-term capital gains. But if your shares are called away after holding 12+ months, the stock appreciation is long-term capital gains. This creates an interesting hybrid tax situation.
Cash-Secured Put: Premium is always short-term capital gains. If you get assigned and then sell the stock later, the stock gains are separate.
Winner: Covered Calls (for long-term holders). If you're planning to hold SPY long-term anyway, covered calls let you collect premium while potentially getting long-term capital gains treatment on the underlying appreciation.
3. Dividend Capture
Covered Call: You collect dividends while holding shares (~1.5% annually for SPY). This is "free" income on top of option premium.
Cash-Secured Put: No dividends. Your cash earns money market rates while waiting (~4.5% in 2025-2026 with high interest rates), which partially compensates.
Winner: Depends on rates. When money market rates are 4-5%, CSP's cash yield actually exceeds SPY's 1.5% dividend. When rates are near zero (like 2020-2021), covered calls win the yield comparison.
4. Assignment Handling
Covered Call: When your call is exercised, your shares are sold at the strike price. Clean, simple. You get cash, position is closed.
Cash-Secured Put: When your put is exercised, you buy 100 shares at the strike. Now you own stock that might be underwater. You need a plan for what happens next — hold it, sell it, or start selling covered calls against it.
Winner: Covered Calls (simpler). Assignment on a covered call is a profit event. Assignment on a CSP can feel like a loss event, even if the math works out similarly.
5. Upside Participation
Covered Call: Your upside is capped at the short strike. If SPY rips 8% in a month and your call is at the 30-delta, you miss most of that move.
Cash-Secured Put: If SPY rips 8%, your put expires worthless (great), and your cash is available for the next trade. But you didn't participate in any of that rally.
Winner: Draw. Both strategies cap your upside, just in different ways.
6. Psychological Comfort
Covered Call: Feels like you "own something." The shares are in your account. Many traders find this psychologically comforting.
Cash-Secured Put: Feels like you're "waiting to buy." Some traders love the patience of it. Others feel like they're missing out.
Winner: Personal preference. This matters more than traders admit. If a strategy makes you uncomfortable, you'll manage it poorly.
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When to Use Each Strategy
Use Covered Calls When:
Use Cash-Secured Puts When:
Use Both (The Wheel Strategy):
Many traders combine both into the Wheel: sell CSPs until assigned, then sell covered calls until shares are called away. This creates a continuous premium-collecting cycle.The backtest for the full Wheel strategy on SPY is worth running — you can set it up in OptionsPilot's backtester and see the combined return profile across market environments.
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Can You Run Both Simultaneously?
Yes, and some traders do. The strategy is:
This is effectively a covered strangle (or "leveraged wheel"). It collects premium from both sides. The risk: you could get assigned on your put and end up with 200 shares during a downturn, doubling your stock exposure right when the market is falling.
I've done this in my own account during high-VIX environments where the put premium is juicy. It works — but only if you're genuinely happy to own 200 shares. Size accordingly.
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Test This Yourself
The best way to settle this debate for your specific situation is to run both backtests side by side. Set up a covered call and a cash-secured put on SPY with the same delta and DTE, look at the equity curves, and decide which return profile you prefer.
If you want to explore pre-built setups first, check out the strategy library in our backtester — we have optimized configurations for both covered calls and CSPs.
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Frequently Asked Questions
Are covered calls and cash-secured puts the same?
Financially, yes — put-call parity means they have identical risk/reward at the same strike and expiration. Over 10 years of backtesting on SPY, covered calls returned 12.8% vs 12.4% for CSPs (the gap is dividends). Practically, they differ in capital requirements, tax treatment, assignment mechanics, and margin efficiency.
Which has better returns: covered calls or CSPs?
The returns are essentially identical after adjusting for dividends and interest rates. Covered calls have a slight total-return edge (~0.4% annually) because they collect SPY's dividend. But CSPs have better risk-adjusted returns (0.78 vs 0.71 Sharpe) due to lower drawdowns from holding cash instead of stock.
Can I do both covered calls and cash-secured puts?
Yes. The combined strategy is called a covered strangle — you own shares, sell calls against them, and simultaneously sell puts for additional premium. This works well when you're willing to increase your stock position. Just be aware that a market drop could leave you assigned on the puts while your existing shares are also declining.
Which is better in a retirement account (IRA)?
In an IRA, tax differences are irrelevant. Cash-secured puts are often the better choice because they offer comparable returns with lower drawdowns (0.78 vs 0.71 Sharpe) and don't tie up capital in shares. The CSP's cash collateral also earns interest, which is particularly valuable in the current high-rate environment.