Bookmark and Share 30, ACG's Index Option Writing Study

Asset Consulting Group has released an analysis of 23 years of index option writing. The results show that writing covered calls (and their equivalent, naked puts) increases returns and lowers portfolio volatility.

Two Flavors Of BuyWrite Index and Two Other Similar Indices

The ACG study looked at 4 indices that sell options for income:

  • BXM - CBOE S&P 500 BuyWrite Index
    writes 1-month ATM (at the money) covered calls on S&P 500
  • BXY - CBOE S&P 500 2% OTM BuyWrite Index
    writes 1-month 2% OTM (out of the money) covered calls on S&P 500
  • PUT - CBOE S&P 500 PutWrite Index
    holds T-bills and writes 1-month ATM naked puts on S&P 500
  • CLL - CBOE S&P 500 95-110 Collar Index
    writes 1-month 110% covered calls and buys 3-month 95% puts

Their summary findings show that the first 3 outperformed the S&P 500 with higher annual return and lower volatility. (The CLL (collar) index actually did worse than the BuyWrite Index and PutWrite Index so we will leave it out of this discussion.)

buywrite index

Shown graphically with annual return on the left in green (more is better) and standard deviation on the right in peach (less is better):

index performance for buywrite and putwrite

If we look at different time periods the BXM and BXY beat the S&P 500's annual return for a variety of durations (with period ending Dec 31, 2011):

bxm index performance

For even more data, download the complete Asset Consulting Group analysis and report.

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