CBOE DJIA BuyWrite Index

The CBOE S&P DJIA BuyWrite Index (ticker symbol BXD) is a benchmark index designed to show the hypothetical performance of a portfolio that engages in a buy-write strategy on the Dow Jones Industrial Average (DJIA).

Descriptions

The term buy-write is used because the investor 'buys' stocks and 'writes' call options against the stock position. The writing of the call option provides extra income for an investor who is willing to forgo some upside potential.

The BXD Index is designed to show the hypothetical performance of a strategy in which an investor buys a portfolio of the 30 stocks in the DJIA, and also sells (or writes) covered call options on the DJIA Index.

History

Investors have used exchange-listed options to engage in buy-write strategies since the 1970s, but prior to 2002 there was no major benchmark for buy-write strategies. In 2000 and 2001, options portfolio managers requested that the Chicago Board Options Exchange develop benchmark indexes for buy-write strategies. The CBOE S&P 500 BuyWrite Index (BXM) was introduced in 2002, and the CBOE DJIA BuyWrite Index (BXD) was introduced in 2005.

Investors have used covered call strategies for more than three decades. As noted in a magazine article “Buy Writing Makes Comeback as Way to Hedge Risk.” Pensions & Investments, (May 16, 2005), two developments have enhanced the interest in covered call strategies in recent years: (1) in 2002 the Chicago Board Options Exchange introduced the first major benchmark index for covered call strategies, the CBOE S&P 500 BuyWrite Index (ticker BXM), and (2) in 2004 the Ibbotson Associates consulting firm published a case study on buy-write strategies. More than forty new buy-write investment products have been introduced since mid-2004 (see examples below).

Samples of Buy-write Investment Products Based on the DJIA

Published Studies by Consulting Firms on the Buywrite Strategy

In 2007 Fund Evaluation Group (FEG) issued a study entitled "Evaluation of BuyWrite and Volatility Indexes—Using the CBOE DJIA BuyWrite Index (BXD) and the CBOE DJIA Volatility Index (VXD) for Asset Allocation and Diversification Purposes." The paper studied the 109-month period from October 1997 to November 2006. The FEG study presented several findings on the 9-year performance of the BXD Index, including:

In 2006 Callan Associates published A Review of the CBOE S&P 500 BuyWrite Index.

In 2004 Ibbotson Associates published a case study on buywrite strategies.

News Clips - References

External Links -- Education and Benchmark Indexes

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