The CBOE Buy-Write Index, known as BXM, is a benchmark index measuring the performance of a hypothetical portfolio strategy. This strategy involves a long position in the S&P 500 stock index combined with the systematic sale of one-month, at-the-money S&P 500 call options. Its objective is to represent the returns and risk characteristics of a covered call strategy, offering income generation and reduced volatility compared to holding only the underlying equity.
Mechanism
The index is constructed by holding the S&P 500 index and simultaneously writing a corresponding call option against each unit of the index. The call option typically has approximately one month until expiration and a strike price near the current S&P 500 level. Premiums received from selling these options contribute to the portfolio’s return, while the written call caps upside participation beyond the strike price.
Methodology
This strategy aims to generate regular income from option premiums, which can partially offset declines in the underlying asset’s value, thereby lowering overall portfolio volatility. While not directly existing for crypto in an identical form, the underlying methodology of combining long asset exposure with systematic call option selling provides a model for institutional crypto investors seeking yield or risk reduction. This could be implemented through OTC options trading or specialized DeFi protocols.
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