Buy write
However, prior to 2002 there was no major benchmark for buy-write strategies. The BXM Index is designed to show the hypothetical performance of a strategy in which an investor buys a portfolio of the S&P 500 stocks, and also sells (or writes) covered call options on the S&P 500 Index. Investors have used covered call strategies for more than three decades.As noted in a magazine article “Buy Writing Makes Comeback as Way to Hedge Risk.” Pensions & Investments, (May 16, 2005), two developments have enhanced the interest in covered call strategies in recent years: (1) in 2002 the Chicago Board Options Exchange introduced the first major benchmark index for covered call strategies, the CBOE S&P 500 BuyWrite Index (ticker BXM), and (2) in 2004 the Ibbotson Associates consulting firm published a case study on buy-write strategies. In 2006 Callan Associates published A Review of the CBOE S&P 500 BuyWrite Index. The BXM Index won the Most Innovative Benchmark Index award at the 2004 Super Bowl of Indexing Conference. More than forty new buy-write investment products have been introduced since mid-2004 (see Samples section below). .
The term buy-write is used to describe an investment strategy in which the investor buys stocks and writes call options against the stock position. In conjunction with a 2002 study by Professor Robert Whaley of Duke University, the Chicago Board Options Exchange introduced the CBOE S&P 500 BuyWrite Index in 2002.
The writing of the call option provides extra income for an investor who is willing to forgo some upside potential. Investors have used exchange-listed options to engage in buy-write strategies since the since the 1970s, and descriptive articles were published in the The Journal of Portfolio Management in 1978 by Henry Pounds and in 1980 by Yates and Kopprasch (see references section below).
