CBOE S&P 500 2% OTM BuyWrite Index (BXY) www.cboe.com/BXY


The CBOE S&P 500 2% OTM BuyWrite Index (BXY) uses the same methodology as the widely accepted CBOE S&P 500 BuyWrite Index (BXM) but the BXY Index is calculated using out-of-the-money S&P 500 Index (SPX) call options, rather than at-the-money SPX call options.

The BXY strategy diversifies the buy-write opportunities currently provided by the BXM. The BXY Index yields lower monthly premiums in return for a greater participation in the upside moves of the S&P 500.

A "buy-write," also called a covered-call strategy, generally is considered to be an investment strategy in which an investor buys a stock or a basket of stocks, and also sells ("writes") call options that correspond to the stock or basket of stocks. This strategy can be used to enhance portfolio returns and reduce volatility.

The buy-write strategy gained increased acceptance following the publication of a 2004 study by Ibbotson Associates, a leading research firm specializing in asset allocation, that concluded that the CBOE BXM had the best risk-adjusted performance of the major domestic and international equity-based indexes over the previous 16 years. Investors recently have allocated more than $20 billion in at least 40 buy-write funds.

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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.

The CBOE S&P 500 2% OTM BuyWrite Index (BXY) is designed to represent a hypothetical buy-write strategy. Like many passive indexes, the BXY 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 BXY 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 BXY Index. CBOE has a business relationship with Standard & Poor's on the BXY. CBOE® and Chicago Board Options Exchange® are registered trademarks of the CBOE, and SPX, BXM and BXY are servicemarks of CBOE. The methodology of the CBOE S&P 500 2% OTM BuyWrite Index is owned by CBOE and may be covered by one or more patents or pending patent applications. Supporting documentation for claims, comparisons, recommendations, statistics or other technical data is available by calling 1-888-OPTIONS, sending an e-mail to institutional@cboe.com, or by visiting www.cboe.com/BXY.

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