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:
- Income Generation. Selling index options 12 times per year can produce significant income. Over the 109-month period studied, the average monthly options premium received was 1.84%, or an annualized rate of 24.46%.
- Diversification and Reduced Volatility. The volatility of the BXD was 25% less than that of the DJIA and 46% lower than the Russell 2000. The study found that if an investor had allocated 25% of an otherwise all-stock portfolio to the BXD, the portfolio volatility would have declined by about 9%.
- Improved Risk-Adjusted Returns. Incorporating a 10% allocation to the BXD could have improved the risk-adjusted returns (as measured by the Sharpe Ratio) of all four comparative portfolios studied (i.e., all-stocks, all fixed income, aggressive and conservative portfolios).
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.
Read more about this topic: CBOE DJIA Buy Write Index
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