SPX O-T-M Option Writing – Higher Returns and Lower Volatility?

In recent years many investors have become discouraged with so-called “traditional” investments – interest rates are at low levels, and stocks have experienced volatile periods with sluggish returns over the past 12 years.

Some investors are looking to the strategy of writing out-of-the-money (OTM) covered calls on the S&P 500 Index with the goals of enhancing income and boosting risk-adjusted returns.

A benchmark index that has performed relatively well is the CBOE S&P 500 2% OTM BuyWrite Index (BXY). Since June of 1988 (the month of inception for BXY historical data), the BXY Index is up about 1062%, while the S&P 500 (TR) Index is up 803% and the S&P GSCI (commodity) Index is up 327%.

Over each of the past 1-year, 5-year, 10-year and 20-year time periods, the BXY Index has had higher annualized returns and lower volatility than the S&P 500 Index, S&P GSCI Index, and MSCI EAFE Index. 

Past performance is not necessarily indicative of future returns, and investors should closely consider issues re transaction costs and taxes before making any investment.

The performance shown above indicates that the BXY Index is worth exploring for investors with the goals of adding income and boosting risk-adjusted returns. Execute Success with SPX options!