Cboe® MSCI Emerging Markets 20-Delta BuyWrite Index (BDEF℠)

The Cboe® MSCI® Emerging Markets 20-Delta BuyWrite Index (BDEF^SM Index) is a benchmark index designed to track the performance of a hypothetical buy-write strategy on the MXEF® Index. The BDEF Index is a passive total return index based on buying a MXEF stock index portfolio and “writing” (or selling) the near-term Out-of-the-Money (OTM) MXEF "covered" call option, generally on the third Friday of each month. The distinctive feature of this index is, when writing the OTM MXEF Call option, the option with a delta closest to 0.20 is selected.

Resources

• Cboe MSCI BuyWrite Indices Methodology
• BDEF 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).