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S&P/ASX Buy-Write Index™

The S&P/ASX Buy-Write Index (XBW) replicates the performance of a well known option trading strategy where the investor holds a long position in a security and then writes (or sells) call options against the long position. The short call position earns option premium for the investor however the short call also limits the potential profit from the long security position.

In the case of the XBW, the underlying security is the S&P/ASX 200 Accumulation Index over which a S&P/ASX 200 Index call option is sold each quarter. Once an option series has been selected and a short option position established, the option position is held to expiry. At the expiry of the current option a new option to be sold is selected where the new option is the next quarterly option to expire and the next out of the money strike.

For more information on the XBW please view the Buy Write Strategy factsheet.

Australian Data

Why use options in equity portfolio management?

 

Options are a financial instrument that can be considered whenever equity fund managers seek to:

  • Generate extra returns: by writing options and collecting premium income when your market view is that you are happy to cap upside.
  • Reduce risk: by buying put options as insurance, or by writing premium income which cushions downside price moves.
  • Reduce transactions costs: by gaining exposure to stocks or an index using options, rather than paying full stock transactions costs.
  • Reduce market impact costs of acquiring stock: by accumulating exposure via options, and then selling those options when the required stock weight has been reached.
  • Capital gains implications: because you can effectively sell stock by selling call options, capital gains implications can be managed.

Buy-Write Examples

 

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