SCHD is one of my favorite ETFs. It has a nice combination of growth and dividend income. I am on a journey asking AI to tell me what is the best options strategy for instruments in my investment portfolio. Today it is going to be SCHD. I’m not going to post the long detail but focus on quick easy to read summaries.
AI Response
| Rank | Strategy | Income | Consistency | Risk | Overall |
|---|---|---|---|---|---|
| #1 | Covered Calls (63D, 10–12% OTM) | High | Extremely High | Moderate | BEST overall |
| #2 | Put Credit Spreads (30–63D, 7–10% OTM, 5% wide) | Medium | Extremely High | Low | BEST risk-adjusted |
| #3 | Cash-Secured Puts (30–45D, 7–10% OTM) | High | Very High | Moderate | Excellent |
| #4 | Collars (63D, 10% OTM call / 10% OTM put) | Low | Extremely High | Very Low | Safest |
Covered Calls (short call, hold to expiry, roll at expiry)
Most consistent option-income (smoothest outcomes)
Winner: ~63 trading days (≈ 3 months), 15% OTM call
- Positive net option income: 100% of cycles (in this model)
- Tradeoff: very small premium (because it’s far OTM)
Using latest SCHD close in your file ($29.15):
- Sell ~3-month call at ~15% OTM → strike ≈ $33.52
Best “balance” (still consistent, materially more premium)
If you want noticeably more monthly dollars while staying very stable, SCHD’s uptrend favors a slightly closer strike but still fairly OTM:
Best balanced: ~63 DTE, 10–12% OTM
- 10% OTM: positive cycles ~92.9%, higher premium than 12–15%
- strike ≈ $32.07
- 12% OTM: positive cycles ~92.9%, slightly smoother than 10% OTM but a bit less premium
- strike ≈ $32.65
Why SCHD wants farther OTM than TLT: SCHD trends upward more often, so “closer” calls get hit more frequently (more intrinsic given back), reducing income consistency.
Put Credit Spreads (5% wide, hold to expiry, roll at expiry)
Most consistent (defined risk, extremely smooth)
Winner: ~63 DTE, 15% OTM short put, 5% wide
- Positive net spread income: 100% of cycles (in this model)
- Tradeoff: very small credit
At $29.15:
- Sell put ≈ 15% OTM → strike ≈ $24.78
- Buy put 5% lower (width ≈ $1.46) → strike ≈ $23.32
Best balanced (high consistency + better credit)
Best balanced: ~30 DTE, 7% OTM short put, 5% wide
- Positive cycles: ~98.3%
- Better premium than very-far OTM, still very steady
At $29.15:
- Sell put ≈ $27.11
- Buy put ≈ $25.65
(Also solid: 63 DTE, 10% OTM had ~98.2% positive cycles with higher credit than 30D/7% in this model.)
What I’d use for “most consistent income” on SCHD
- Simplest: Covered calls 63 DTE / 12–15% OTM
- If you want maximum smoothness: 15% OTM
- If you want better dollars with still-high consistency: 12% OTM
- Defined risk: Put credit spreads 30 DTE / 7% OTM / 5% wide (most practical “steady income” setting)
If you want, I can also rerun this with:
- a profit-taking roll rule (e.g., close at 50–75% of max profit), and/or
- a volatility-regime rule (different OTM based on RV20 percentile),
which typically improves consistency further on trending ETFs like SCHD.
My Thoughts
For SCHD, AI recommends covered calls or cash secured puts as primary strategies. I like using cash secured puts and SCHD trades low enough that you only need ~$3000 cash reserve to write a put contract. I haven’t been trading enough cash secured puts on SCHD but I will start to over the next few months. I will likely sell the range AI recommends too.
Share The Wealth
Is AI reviewing your investment portfolio yet and giving you recommendations? If not, what are you waiting for?