Buy-Write the Right Way

This column was originally published on RealMoney on Dec. 14 at 10:04 a.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

I have written several articles about closed-end funds that sell options as an income strategy. These funds try to offer low-beta, high-yielding performance. Some funds do better than others. One thing that seems to be missing from this space is an ETF tied to one of the buy-write indices that is passively managed.

There has been a lot of research on buy-write strategies (the Australian Stock Exchange, Schaeffers Research and the CBOE, among others) and they all seem to draw the same conclusion: Buy-writes offer lower volatility, higher yields and outperformance in most market environments, except for "up a lot."

The CBOE has buy-write indices tied to several of the broader benchmarks, including the BXM index, which buys the S&P 500 index and sells at-the-money calls. For now, there is no exchange-traded fund to capture this, but there is one closed-end fund that is meant to capture BXM as a passively managed product: the (BEP Quote)S&P 500 Covered Call Fund, managed by IQ Investment Advisors. ...