What is the CBOE S&P 500 BuyWrite Index (BXM)?

The CBOE S&P 500 BuyWrite Index is a benchmark index that shows the performance of a portfolio using a buy-write strategy, in effect a form of hedging.

Where have you heard about the CBOE S&P 500 BuyWrite Index (BXM)?

As an investor, you may have come across the index in financial media or in guides to investment. Your financial adviser may have mentioned it, as may fellow investors. It does, however, relate to a sophisticated trading strategy, thus investors are likely to become aware of it only when they have gained experience.

What you need to know about the CBOE S&P 500 BuyWrite Index.

The CBOE S&P 500 BuyWrite Index is a benchmark index that displays how a portfolio would perform had it been using a buy-write strategy based on the S&P 500. A buy-write strategy involves buying a quantity of a particular security or securities, such as the shares listed in the S&P 500 Index, and then writing and selling a call option, giving the buyer the right but not the obligation to buy that package of securities at a higher price.

The seller immediately earns the option premium (the fee charged for the option). If the portfolio does not reach that higher price, the buyer will not exercise the option and the seller keeps the premium and the securities. If it goes above that price, the seller transfers the securities to the buyer at the agreed price and foregoes only the difference between the option price and the market price. Buy-write strategies thus provide protection on the downside and the option-premium income in return for limiting the potential upside.