Covered Calls

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The rules used

The same rules drive the backward test and the forward test. They follow the method of Cboe's published covered-call and collar indexes (BXM and CLL).

The books: Three $10,000 paper books per stock, each holding the same shares (300 of SCHD, 100 of TQQQ). Just holding only owns the shares. Covered call also sells one call per 100 shares. Collar sells the same call and also buys a put. Leftover cash earns nothing, the same in all three books.
When the call is sold: Once a month, on the monthly options expiry day (the third Friday, or the Thursday before when that Friday is a market holiday), at that day's closing price. The call sold expires on next month's expiry day, about four to five weeks later.
Which call: The listed strike with a delta closest to 0.30, meaning roughly a 30% chance of the shares finishing above it. That is usually a few percent above the price. Delta is worked out with the Black-Scholes formula from how much SCHD moved over the last 20 trading days, because past option volatility isn't available. The formula only chooses the strike; the price paid is always the real one.
When the put is bought (collar only): The same day as the call, with the same expiry. The strike is the one nearest 95% of the share price, so about 5% below it. The put caps how much a month can lose.
Holding and expiry: Both options are held to expiry, with no early closing or rolling. If SCHD closes above the call strike, the shares are called away at the strike and bought straight back at the close, so the book gives up the gain above the strike. If it closes below the put strike, the put pays the difference. Otherwise the options expire worthless and the book keeps the premium. Then the next month starts.
Costs: The backtest has closing prices but no bid/ask, so every option trade gives up half the stock's live bid/ask gap: a sale gets less than the close and a purchase pays more. That is 18% of the option's price for SCHD, whose options trade thinly, and much less for TQQQ, whose options are among the most traded. Each backtest states its figure.
Dividends: All three books receive the stock's dividends on each ex-dividend date.
The two live-only books: Weekly call uses the covered-call rules, but writes the option that expires the coming Friday, every week. Cash-secured put holds no shares. Each month it sells three puts at a delta of about 0.30 (a strike a little below the price), with its cash set aside to buy the shares if needed. If SCHD ends below the strike, it pays the difference. It receives no dividends, and here its cash earns no interest either. These two books start with the forward test; there is no backtest for them.
Months that are sat out: A month with a share split, or a day with no real option prices, is sat out by every book alike and shows as flat.
Price data: The backward test uses Robinhood's real daily closing prices of the options that actually traded. A $0.01 price is a placeholder, not a trade, so it is ignored. A strike more than 3% of the price away from the target counts as missing. The forward test uses live bid and ask prices: it sells at the bid, buys at the ask, and values the book at what it would cost to close.

Words, in plain terms

Call option: The right to buy 100 shares at a set price until a set date. Selling one pays you cash now; in return you promise to sell your shares at that price if asked.
Put option: The right to sell 100 shares at a set price until a set date. Buying one is insurance against a fall below that price.
Strike: The set price in an option.
Expiry: The date an option ends.
Premium: The price of an option: what the seller receives and the buyer pays.
Covered call: Owning shares and selling calls on them. You get extra income, but you give up gains above the strike.
Collar: A covered call plus a bought put. The call's premium helps pay for the put, so both the loss and the gain in a month are capped.
Called away: When the shares finish above the call strike and have to be sold at the strike.
In / out of the money: Whether an option would be worth using at expiry. A call is in the money above its strike, and a put is in the money below its strike.
Delta: Roughly the chance that an option finishes in the money. A 0.30-delta call has about a 30% chance.
Volatility: How much the price swings. Higher volatility makes options cost more.
Bid / ask: The best price a buyer will pay (bid) and a seller will accept (ask). The gap between them is a cost of trading.
Ex-dividend date: The day the shares start trading without the next dividend. You need to own them before that day to get it.
Cash-secured put: Selling a put while keeping enough cash to buy the shares at the strike if asked. It pays like a covered call without owning the shares first.
Weekly option: An option that expires at the end of the week, not the month. Each one pays less, but you can sell one every week.
Cycle: One month, from one expiry day to the next.
Drop from a peak (drawdown): How far the book fell from its highest point before recovering.