Global Markets
Tradable Products
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.
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.
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).
