Finding Alpha Via Covered Index Writing

Posted: 9 Oct 2006

See all articles by Joanne M. Hill

Joanne M. Hill

ProShare Advisors LLC

Venkatesh Balasubramanian

Goldman Sachs Group, Inc. - Fixed Income, Currency and Commodities (FICC)

Ingrid C.L. Tierens

Goldman Sachs Group, Inc. - Global Securities Services (GSS)

Krag (Buzz) Gregory

Goldman Sachs Group, Inc. - Global Investment Research

Abstract

Covered S&P 500 Index call strategies have, on average, outperformed the S&P 500 Index over the past 15+ years while realizing lower standard deviations of returns. This analysis dissects the strategy underlying the BuyWrite Monthly Index on the S&P 500. The BXM is the most broadly quoted benchmark for index call-selling strategies. Also discussed are alternative structured S&P 500 option-overwriting strategies, which have even more attractive risk-return trade-offs than the BXM because they take advantage of the implicit positive risk premium of equities and potentially adjust the strike price of the call sold on the basis of the volatility environment.

Keywords: Derivatives Instruments, Equity Derivatives, Equity Investments, Other, Alternative Investments, Hedge Fund Strategies, Portfolio Management, Equity Strategies

Suggested Citation

Hill, Joanne M. and Balasubramanian, Venkatesh and Tierens, Ingrid C.L. and Gregory, Krag (Buzz), Finding Alpha Via Covered Index Writing. Financial Analysts Journal, Vol. 62, No. 5, pp. 29-46, October 2006, Available at SSRN: https://ssrn.com/abstract=935138

Joanne M. Hill (Contact Author)

ProShare Advisors LLC ( email )

7501 Wisconsin Ave
Suite 1000
Bethesda, MD 20814
United States
9177965360 (Phone)

Venkatesh Balasubramanian

Goldman Sachs Group, Inc. - Fixed Income, Currency and Commodities (FICC) ( email )

One New York Plaza, 50th Floor
New York, NY 10004
United States
212-855-0053 (Phone)

Ingrid C.L. Tierens

Goldman Sachs Group, Inc. - Global Securities Services (GSS) ( email )

New York, NY 10282
United States
212-357-4410 (Phone)

Krag (Buzz) Gregory

Goldman Sachs Group, Inc. - Global Investment Research ( email )

One New York Plaza, 45th Floor
New York, NY 10004
United States
212-357-3770 (Phone)

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