A new study, "The CBOE S&P 500 BuyWrite Index (BXM) — A Review of Performance," was released last week by investment-advisory firm Hewitt EnnisKnupp.
The study, commissioned by Chicago Board Options Exchange (CBOE), compares the performance of "traditional" indexes and CBOE S&P 500 BuyWrite Index (BXM(SM)) since mid-1986.
Summary of Results of the Study:
From June 1986 through January 2012, the BXM Index produced a:
•Similar return, but lower volatility, relative to the S&P 500 Index
•Return in excess of all other comparative indexes
•Standard deviation lower than all other equity and commodity indexes covered in the study
•Standard deviation lower than the 30-Year Treasury Index
•Sharpe ratio (a measure of risk-adjusted returns) that was superior to that of other equity and commodity indexes evaluated.
The paper and other studies are available at www.cboe.com/benchmarks.
The BXM Index is a passive total return index based on (1) buying an S&P 500 stock index portfolio, and (2) "writing" (or selling) the near-term S&P 500 Index (SPX(SM)) "covered" call option, generally on the third Friday of each month. The SPX call written will have about one month remaining to expiration, with an exercise price just above the prevailing index level (i.e., slightly out of the money). The SPX call is held until expiration and is cash settled, at which time a new one-month, near-the-money call is written.
