Sell in May and Go Away Alternatives (Part 2 – BXY)

Last night I began a series of blogs that are centered on the Wall Street saying, “Sell in May and Go Away”.  I noted that I like to test such sayings and did find some merit in being out of the market for the months of May through October each year over the past 20 years.   I decided to perform some back testing and substituted systematic option strategies that are tracked by the CBOE for being in cash from May to October.  Yesterday I should how implementing the CBOE S&P 500 Buy-Write Index (BXM) for going to cash results in slightly better returns than exiting the market.  If you missed that click on the link below to get a full picture of where I’m going with this blog –

Tonight we are going to take a look at the CBOE S&P 500 2% OTM Buy-Write Index (BXY) as a substitute for going to cash for six months each year.  The chart below shows the results of investing $100 in three different methods over the past 20 years.  The beginning of the 20 year time frame is actually April 15, 1994 which is the date that the strategy that BXY measures would sell an SPX call option that is 2% out of the money relative to where the S&P 500 was trading at the appropriate time.  A full picture on the strategy behind BXY can be found at

The following chart shows the results of $100 invested in three different systematic methods from April 15, 1994 through April 18, 2004.  For a clear picture I break out each of these ‘strategies’ as well –

SPX TR – total return (price appreciations plus dividends) of just buying an S&P 500 portfolio.

SPX + BXY – total return of the S&P 500 from October expiration to April expiration + return of the CBOE S&P 500 2% OTM Buy-Write Index from April expiration to October expiration.

SPX + Cash total return of the S&P 500 from October expiration to April expiration + six month certificate of deposit rate from April expiration to October expiration.

BXY Performance

The total return of $100 invested in the S&P 500 results in a portfolio worth $728.76 at the end of this 20 year period.  Following the old sell in May philosophy actually does pretty well with a portfolio growing to $780.58.  Not on the chart, but worth mentioning is that combining the S&P 500 with the BXM as a substitute for cash resulted in $100 growing to $802.58.  This S&P 500 and BXM combination was highlighted in last night’s blog.  Finally, being in the S&P 500 between October option expiration and April expiration and then implementing the BXY methodology to a portfolio during the other six months results in $100 growing to $846.63.  This is a little over a $40 improvement on BXM being a substitute for going to cash.

BXY takes in less premium than the BXM strategy since an out of the money call option is sold in place of an at the money call.  However this results in BXY allowing for upside price participation when the S&P 500 is in a bullish mode.  Last night I pointed out that there were several years over the past 20 years that the S&P 500 total return was positive from May to October, this positive performance is being captured when BXY is used as the cash substitute instead of BXM.

This concludes part two of discussing strategies that have historically worked better than going to cash for the May to October time period each year.  Tomorrow I’ll finish things up by discussing how the CBOE S&P 500 Put-Write Index (PUT) has fared as the substitute for going to cash.