Buy-write

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. The writing of the call option provides extra income for an investor who is willing to forgo some upside potential. 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. 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 1970s, and descriptive articles were published in the Journal of Portfolio Management in 1978 by Henry Pounds and in 1980 by Yates and Kopprasch (see references section below). However, prior to 2002 there was no major benchmark for buy-write strategies. To help in the development of the CBOE S&P 500 BuyWrite Index (ticker BXM), the Chicago Board Options Exchange commissioned Professor Robert Whaley of Vanderbilt University to compile and analyze relevant data from the time period from June 1988 through December 2001. In April 2002, the index was announced with the publication of 'Return and Risk of CBOE Buy-Write Monthly Index' in Journal of Derivatives (Winter 2002). 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.