All material subject to strictly enforced copyright laws. © 2022 Euromoney Institutional Investor PLC group
Derivatives

OTC Buy-Write Strategies Pick Up

Over-the-counter buy-write strategies, in which investors buy equity indices and sell covered calls on the single stocks, have become increasingly popular in the U.S.

Over-the-counter buy-write strategies, in which investors buy equity indices and sell covered calls on the single stocks, have become increasingly popular in the U.S. Buy-write plays work best in falling or flat markets, cushioning downside moves and lessening overall volatility.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.

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree