CBOE DJIA BuyWrite Index

Definition

The term CBOE DJIA BuyWrite Index refers to a composite that tracks the performance of a hypothetical covered call strategy involving the Dow Jones Industrial Average.  The CBOE DJIA BuyWrite Index is published and maintained by the Chicago Board Options Exchange (CBOE) under an agreement with Dow Jones & Company, Inc.

Explanation

The CBOE DJIA BuyWrite Index (BDX) is designed to mimic the performance of a buy-write strategy applied to the Dow Jones Industrial Average (DJIA).  Also referred to as a covered call, a buy-write is a strategy in which the investor purchases a portfolio of stocks (in this case the DJIA) and also sells call options on the same "basket" of stocks.  Buy-writes typically underperform stocks when their prices increase, and outperform stocks when their prices decline.

The CBOE DJIA BuyWrite Index is a passive index involving the purchase of stocks of companies appearing in the DJIA and the writing of a DJX call option.  The DJX will typically expire in one month and its exercise price is usually above the prevailing price of the index.  First published in 2005, the CBOE DJIA BuyWrite Index trades under the symbol BDX.

Related Terms

CBOE S&P 500 BuyWrite Index, CBOE Russell 2000 BuyWrite Index, CBOE NASDAQ 100 BuyWrite Index, Wilshire 2500 Value