Cboe S&P 500 Multi-Week BuyWrite Index (BXMW)

The Cboe S&P 500 Multi-Week BuyWrite Index^SM is a variation of the Cboe BuyWrite index (BXM) that buffers the impact of negative S&P 500^® returns by selling calls on a weekly basis instead of once a month.   The BXMW tracks the value of a portfolio (BXMW) composed of an investment in S&P 500 stocks overlaid by short positions in 1/4 each of weekly SPX options that expire over the next four consecutive weeks. The BXMW portfolio is rebalanced every Friday, after one the SPX options expires, at the open of  the third Friday of  the month, and the close on the other Fridays.  That option is replaced by a quarter of a new SPX option expiring approximately four weeks later.  

Resources

• BXMW Index Factsheet
• BXMW Index Methodology Paper
• BXMW 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).