Covered-call strategies have always been one of the best known and most popular methods of investing with options. But despite its straightforward, conservative and compelling approach to investing, the use of covered calls still occupies a somewhat marginal space in the massive money management universe.
Now, the Chicago Board Options Exchange has granted a license to Rampart Investment Management to market managed accounts based on the CBOE's BuyWrite Index, or BXM, meaning covered-call writing will be gaining some high-profile exposure. While Rampart is the first firm to be officially licensed, the agreement isn't exclusive and should pave the way for a broader product roll out.
"Having a third-party benchmark, especially with the pedigree and expertise of the CBOE, is crucial in introducing a product," says Ron Egalka, Rampart's president and CEO. The BXM was created by the CBOE in April 2002, but provides market data going back to June 1,1988.
Earlier this month,
TheStreet.com's Dagen McDowell
Annualized BXM returns vs. the S&P 500
|Y-T-D ended 4/17/03||3.9%||1.1%|
|1 year ended 12/31/02||(7.64%)||(22.09%)|
|3 years ended 12/31/02||(4.04%)||(14.54%)|
|5 years ended 12/31/02||4.95%||(0.58%)|
|Source: CBOE. Returns include reinvested dividends.|
The performance of the BXM illustrates some important points. As a purely passive investment program, it has produced superior returns while simultaneously reducing the risk by one-third, according to a study by Rampart. I have nothing against active money managers, but I think this highlights the fact that many times a successful investment strategy rests on the discipline to not deviate from the defined program.