CBOE S&P 500 BuyWrite Index (BXM)

The CBOE S&P 500 BuyWrite Index (BXM) is a benchmark index published in Apr 2002 and jointly developed by the CBOE and Standard & Poor's that tracks the performance of a hypothetical covered call strategy on the S&P 500 Index.

The S&P 500 Buy-Write strategy involves buying the entire stock portfolio covered by the S&P 500 Index and selling equivalent number of near-term slightly out-of-the-money S&P 500 index call options on a monthly basis.

A study by Callan Associates, an investment services consulting firm, analysing the performance of the BXM from June 1988 to August 2006 revealed that the BXM generated returns that are comparable to the S&P 500 but at about two-thirds of the risk. Note that transaction costs not taken into account when computing the returns.

The BXM underperformed the S&P 500 during rising equity markets and outperformed the S&P 500 when markets were flat or declining due to the cushion provided by income generated from selling the calls. A relatively attractive feature of the BXM is the steadiness and low volatility of BXM returns. From June 1988 through December 2006, the annualized standard deviation was 9.2% for BXM compared to 13.8% for the S&P 500.

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