The conundrum with covered calls and short puts is that if the market rallies, you will miss out and have to buy back in at higher prices. If the market tanks, you have still suffered most of the damage.
You can say, “if assigned I’ll sell puts to get back in”, but by the time the stock has rallied, you will be unable to sell puts at your preferred strike price for more than a pittance. For example, I sold covered calls on a small “core” position in CRM, eventually getting called away at about $140. A series of puts sold for less than $1/share failed to get assigned over the past few months. Today the price is $190. Do I now sell puts near $190, and if assigned have I lost most of that $50/share gap? Or do I sell puts at $140, tying up large amounts of cash to earn pennies? If I choose not to play ball, do I buy a different stock or fund, thereby altering my AA? And should I not do that if that other stock or fund has gone way up too?
This may sound like a case for BnH rather than options, but my point is that when an option strategy involves a potential change of AA, the possibility of the market running away without you is a risk that cannot be ignored. It is standard to think of a covered call’s or short put’s risk profile as being the sum of all downside probabilities in cash-settled terms, but we should also factor in the risk of the stock we picked running away without us. If the stock runs away, we may never again have the purchasing power to pick up this many shares. E.g. If I was selling options on 100 shares of CRM, maybe now I can only afford 75. I have permanently lost 25 shares, all while taking almost the risk of owning 100!
This is particularly problematic for people like me who see the sum of EPS or free cash flow to be the foundations of my retirement. When you lose enough shares this way, eventually the sum of all the EPS/FCF for all your shares is less than it would have been via BnH.
You could say “When I win selling puts or calls (I.e. the price didn’t rise), I will reinvest those funds into shares of the stock”. However, stocks can rally faster (or fall faster) than you can earn premiums, as the CRM example demonstrates. So a bet on a long term option selling allocation is a bet that stocks will hold in a narrow range. If they fall too much you lose in cash terms and if they rally too much you lose share purchasing power as you enter the next play.