BXTB Index
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Cboe TLT 2% OTM BuyWrite Index
- Overview
- Performance
The Cboe TLT 2% OTM BuyWrite Index is designed to track the performance of a covered call strategy with a short iShares 20+ Year Treasury Bond ETF (TLT) Call option expiring monthly. The option written is a model-based option and the strike of the new TLT Call option is the listed option strike closest to 102% of the closing value of the TLT on the business day prior to the roll date. To value the component options that comprise the index, a model-based valuation is used.
Resources
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).