Cboe S&P 500 30-Delta BuyWrite Index (BXMD)

The Cboe S&P 500 30-Delta BuyWrite Index^SM (BXMD) is a variation of the Cboe BuyWrite Index (BXM) that  tracks the value of a hypothetical portfolio (BXMD portfolio) that overlays  a short 30-delta call option on the S&P 500^® (30-delta SPX call) instead of an-at-the-money option.  The smaller premium of a 30-delta call relative to an-at-the-money call provides  a smaller buffer but also less giveup on the upside.  The BXMD portfolio  is rebalanced monthly after the expiration of the 30-delta SPX call, typically 11 am ET every  third Friday.  A new 30-delta SPX call is then sold.

Resources

• BXMD Index Factsheet
• Cboe BuyWrite Indices Methodology
• BXMD Historical Price Data

BuyWrite Strategy

Goals

The goals of index buywrite strategies may include: (1) receive upfront premium income in exchange for an upside cap, and (2) reduce risk from related stock indices.

Strategy

To implement an index buy-write strategy: (1) buy a portfolio of stocks or an index ETF, and (2) “write” (or sell) covered calls on a related index option.

Comments

In a comparison of out-of-the-money (OTM) buywrites vs. at-the-money (ATM) buywrites with the same expirations, OTM buywrites often have more potential upside in bull markets, but collect less premium than ATM buywrites, which may have less severe losses in bear market years. Depending on different investment objectives, investors may choose to write calls on all or part of the portfolio, at a constant or dynamic strike, and/or at a dynamic roll schedule. Graphs can vary depending on the strategy used (e.g., an ATM or OTM buywrite strategy).