The strategy is primarily exchange-traded, but growing in over-the-counter popularity. "Fund managers are quietly using the OTC market to avoid volatility and get better execution on expiration Fridays," one official said.
Buy-write indices, such as the Chicago Board Options Exchange's BXM, BXD and BXN, measure the performance of a theoretical portfolio of stocks indexed to the Standard & Poor's 500, Dow Jones Industrial or NASDAQ100 indices, respectively (DW, 10/14). Covered calls generate two streams of income: dividend and call premium. Keith Styrcula, founder of the Structured Products Association, said options on buy-write indices helped the Chicago Board Options Exchange see record volumes last year.