Covered Calls for the Long Run

In a low-implied-volatility environment, writing covered calls is a highly effective investment strategy. As a follow-up to Friday's piece about writing covered calls on individual issues and specific stocks, today I'll focus on some of the products available for investing in a broad market, covered-call strategy.

Covered-call writing received a huge boost last July when Chicago-based research firm Ibbotson Associates published a study on passive investment strategies. The study had a particular focus on the buy-write strategy based on the Chicago Board of Option Exchange's BuyWrite Index (BXM). The BXM is a passive or mechanical investment strategy based on selling near-term, near-the-money S&P 500 calls against the underlying index. The call is held until expiration, with a new one-month call being written on the third Friday or expiration of each month.

Sitting on a Benchmark

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