Buy-Write Index

Definition

The term buy-write index refers to a benchmark that provides investors with insights into the performance of covered call strategies.  Investors use buy-write strategies to add income to an investment's return while lowering volatility.

Explanation

A buy-write index is designed to mimic the performance of a buy-write strategy applied to the portfolio of securities such as the DJIA, S&P 500, or Russell 2000.  Also referred to as a covered call, a buy-write is a strategy in which the investor holds a stock or portfolio of stocks, while at the same time selling call options on these securities.

The Chicago Board Options Exchange (CBOE) provides investors with several buy-write indices, which can be used by investors to benchmark the performance of this strategy.  Generally, a buy-write will underperform stocks when their prices are increasing, and outperform stocks when their prices are declining.

Related Terms

covered combinations, cash-secured puts, protective puts, index puts