This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

More Options on Covered Calls

Employing covered calls remains one of the most popular and basic options trading strategies, but also one of the most overused or misapplied.

Some newly launched funds can help individual investors introduce a slice of this conservative, but somewhat labor intensive, strategy into their long-term portfolio investment pie. (For a primer on covered calls, click here .)

In July, the (MCN) fund raised $260 million, and in August, (FFA) fund raised $338 million. Unlike some existing mutual funds that use options, these two are closed-end funds, meaning they will not be accepting new investors or even new money from existing investors. But one can buy (and sell) stakes in their publicly traded shares.

Both funds are benchmarked to the Chicago Board Options Exchange's (CBOE) BXM Buy Write Index (BXM). Last year, I wrote about the CBOE licensing its BXM Index to be named as both a benchmark and replicated by money management firms in an attempt to bring covered-call strategies to the masses and capitalize on investors' desire to stabilize returns and reduce risk after a five-year roller coaster ride.

The BXM Index is based on applying a purely mechanical buy-write program to the S&P 500 Index, in which 30-day at-the-money calls are sold against a long position in the underlying index. Click here for details on the construction and methodology of the BXM Index.

The bottom line is that over the past 15 years, the BXM has delivered a compounded annualized return of 12.39%, slightly better than the SPX's 12.20%, but with 34% less volatility or market risk.

The use of options to reduce portfolio risk and volatility, especially through covered-calls writing, received another boost last month when Chicago-based research firm Ibbotson Associates published a study on Passive Options Investment Strategies , with a particular focus on the buy-write strategy based on the BXM Index.

This study, combined with a growing acceptance of using options to manage risk and deliver more stable returns, helped the successful launch of the two new covered-call funds this past summer.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
FFA $12.84 0.00%
MCN $7.36 0.00%
AAPL $95.18 0.00%
FB $117.43 0.00%
GOOG $692.36 0.00%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs