CBOE S&P 500 BuyWrite Index (BXM) www.cboe.com/BXM


BXM  

The CBOE S&P 500 BuyWrite Index (BXMSM)

The CBOE S&P 500 BuyWrite Index (BXM) is a benchmark index designed to track the performance of a hypothetical buy-write strategy on the S&P 500 Index.

Announced in April 2002, the BXM Index was developed by the CBOE in cooperation with Standard & Poor's. To help in the development of the BXM Index, the CBOE commissioned Professor Robert Whaley to compile and analyze relevant data from the time period from June 1988 through December 2001. Data on daily BXM prices now is available from June 30, 1986, to the present time (see below). The BXM is a passive total return index based on (1) buying an S&P 500 stock index portfolio, and (2) "writing" (or selling) the near-term S&P 500 Index (SPXSM) "covered" call option, generally on the third Friday of each month. The SPX call written will have about one month remaining to expiration, with an exercise price just above the prevailing index level (i.e., slightly out of the money). The SPX call is held until expiration and cash settled, at which time a new one-month, near-the-money call is written. Please visit the BXM FAQ for more information about the construction of the index.

Experienced investors can ask their brokers about the possibility of engaging in an S&P 500 buy-write strategy by investing in stocks and SPX options.

Updated Price Charts

Study on Index Options Writing by Asset Consulting Group

In February 2012 the Asset Consulting Group published a six-page paper -- "An Analysis of Index Option Writing for Liquid Enhanced Risk-Adjusted Returns". Key findings of the paper include:

  • Total Growth. Total growth for indexes since mid-1986 was 1153% for PUT Index, 830% for BXM Index, 807% for S&P 500® Index, and 368% for CLL Index (Exhibits 2 and 6).
  • Lower Volatility. The PUT, BXM, and CLL indices all had volatility that was about 30 percent lower than the volatility of the S&P 500 Index (Exhibit 4).
  • Left-tail Risk. Over the past 25 years, the worst monthly loss for the S&P 500 Index was a decline of 21.5 percent, compared to a relatively modest 8.6-percent monthly decline for the CLL Index (Exhibit 8e).
  • Risk-adjusted Returns. One measure of risk-adjusted returns, the Sortino Ratio, was 0.90 for the PUT Index, 0.75 for BXY, 0.71 for BXM, 0.50 for S&P 500, and 0.31 for CLL Index (Exhibits 10 and 11). Please note that all the indexes had negative skewness.
  • Monthly Premium Income. The average for the gross monthly premiums collected by the BXM Index was 1.8 percent. The index options usually were richly priced (Exhibits 12 and 13).

For more information, please see the six-page paper and press release.

BXM Study by Callan Associates

In 2006 Callan Associates, an investment services consulting firm, published a new study on the CBOE S&P 500 BuyWrite Index, with an analysis of performance from June 1988 through August 2006. Their study builds upon the earlier studies done by Professor Robert Whaley (now at Vanderbilt University) and by Ibbotson Associates. The new Callan Associates study had several key findings, including:

  • BXM generated superior risk-adjusted returns over the last 18 years, generating a return comparable to that of the S&P 500 with approximately two-thirds of the risk. (The compound annual return of the BXM was 11.77% compared to 11.67% for the S&P 500, and BXM returns were generated with a standard deviation of 9.29%, two-thirds of the 13.89% volatility of the S&P 500.)
  • The risk-adjusted performance, as measured by the monthly Stutzer Index over the 18-year period, was 0.20 for the BXM vs. 0.15 for the S&P 500. A comparison using the monthly Sharpe Ratio yielded similar results (0.22 vs. 0.16, respectively), confirming the relative efficiency of the BXM over the 219-month study period.
  • The BXM underperformed the S&P 500 during most rising equity markets and consistently outperformed the S&P 500 in all periods of declining equity markets, demonstrating the return cushion provided by income from writing the calls.
  • The BXM generates a return pattern different from that of the S&P 500, offering a source of potential diversification. The addition of the BXM to a diversified investor portfolio would have generated significant improvement in risk-adjusted performance over the past 18 years.

Click here for the study by Callan Associates.

Ibbotson Case Study on BXM Index

In September 2004 the Ibbotson Associates consulting firm issued a case study on the investment strategy represented by the CBOE S&P 500 BuyWrite Index (BXMSM). The study was three-fold: 1) assess risk-adjusted performance of the BXM; 2) evaluate the role of this covered-call strategy in a portfolio; and 3) establish if an investor can implement the strategy. Please visit these links to see a 4-page paper with a summary of highlights, a press release and the 35-page study.

Introduction to Buy-Write Strategies

A "Buy-Write" strategy generally is considered to be an investment strategy in which an investor buys a stock or a basket of stocks, and also writes covered call options that correspond to the stock or basket of stocks.

Buy-Write strategies provide option premium income that can help cushion downside moves in an equity portfolio, but Buy-Writes often under perform stocks in rising markets. Thus, some Buy-Write strategies significantly outperformed stocks in 2000 when stock prices fell, but Buy-Writes tended to under perform stocks in the years 1995 - 1998 when the S&P 500 rose by more than 20% per year.

Buy-Write strategies have an added attraction to some investors in that Buy-Writes can help lessen the overall volatility in many portfolios.




The CBOE S&P 500 BuyWrite Index (BXMSM) is designed to represent a proposed hypothetical buy-write strategy. Like many passive indexes, the BXM Index does not take into account significant factors such as transaction costs and taxes and, because of factors such as these, many or most investors should be expected to underperform passive indexes. Investors attempting to replicate the BXM Index should discuss with their brokers possible timing and liquidity issues. Transaction costs and taxes for a buy-write strategy such as the BXM could be significantly higher than transaction costs for a passive strategy of buying-and-holding stocks. Past performance does not guarantee future results. Standard & Poor's®, S&P®, and S&P 500® are registered trademarks of The McGraw-Hill Companies, Inc. and are licensed for use by the Chicago Board Options Exchange, Incorporated (CBOE). CBOE, not S&P, calculates and disseminates the BXM Index. The CBOE has a business relationship with Standard & Poor's on the BXM. LEAPS®, FLEX®, OEX®, XEO®, MNX®, CBOE® and Chicago Board Options Exchange® are registered trademarks of the CBOE, and SPXSM, and CBOE S&P 500 BuyWrite IndexSM BXMSM are servicemarks of the CBOE. The methodology of the CBOE S&P 500 BuyWrite Index is owned by CBOE and may be covered by one or more patents or pending patent applications.

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