The BXR is a benchmark index that measures the performance of a theoretical portfolio that sells Russell 2000 Index (RUT) call options, against a portfolio of the stocks included in the Russell 2000 Index. A “buy-write,” also called a covered call, generally is considered to be an investment strategy in which an investor buys a stock or a basket of stocks, and also sells call options that correspond to the stock or basket of stocks. This strategy can be used to enhance portfolio returns and reduce volatility.
A buy-write strategy could appeal to yield hungry investors who are concerned about today’s low interest rates for fixed income and high price-earnings ratios for some stocks.
VOLATILITY AND THE RVX INDEX
Option sellers often track key volatility indexes to gain a better idea of how much gross options premium might be generated by an option-selling strategy.
The CBOE Russell 2000 Volatility IndexSM (RVXSM) is a key measure of market expectations of near-term volatility conveyed by Russell 2000® stock index option prices. It measures the market’s expectation of 30-day volatility implicit in the prices of near-term Russell 2000 options. RVX is quoted in percentage points, just like the standard deviation of a rate of return, e.g. 19.36. CBOE disseminates the RVX index value continuously during trading hours. The RVX Index is a leading barometer of investor sentiment and market volatility relating to the Russell 2000 Index.
MORE VOLATILITY AND OPTIONS PREMIUMS FOR SMALL-CAP STOCKS?
In recent years, have small-cap stocks had higher volatility and the potential for higher premiums than tech stocks? Note in the table below that the average daily closing value of the RVX Index was higher than that of the VXN Index in each of the past 11 years.
Average Daily Closing Value Per Year
|VXN – CBOE NASDAQ Volatility Index||RVX – CBOE Russell 2000 Volatility Index|