The Chicago Board Options Exchange launched a variation of its BXM index called the BXY index, which tracks the performance of hypothetical buy-write strategies on the Standard & Poor's 500 index using 2% "out of the money" call options, according to a news release issued today. Matt Moran, vice president of business development at the CBOE, said the new index was launched in response to investor interest in buy-write strategies over the past two years.
In a buy-write strategy, an investor buys a stock, basket of stocks or buys into an index fund and simultaneously writes call options on those stocks. "Two percent out of the money" means that the strike price on the call option is 2% higher than the underlying index or security.
According to research conducted by Joanne Hill, managing director of equity product strategies at Goldman Sachs, a buy-write strategy on the S&P 500 index using 2% out of the money call options produced about a 12% return between Jan. 20, 2005, and Jan. 19, 2006 - about four percentage points higher than the BXM index, which assumes at-the-money call options.