Home Logon FTA Investment Managers Blog Subscribe About Us Contact Us

Search by Ticker, Keyword or CUSIP       
 
 
 
Blog Home
Bob Carey
Chief Market Strategist
Bio
X •  LinkedIn
 

  This Covered Call Index Tends To Beat The Broader Market In Low And Negative Return Climates
Posted Under: Broader Stock Market
Supporting Image for Blog Post

 
View from the Observation Deck  
  1. From 2002-2017, the CBOE S&P 500 BuyWrite Index (an index designed to measure a covered call strategy) outperformed the S&P 500 Index in five of the 16 calendar years. It has lagged year-to-date thru 3/9/18 (see table).
  2. While covered call options can generate an attractive level of current income, they also can cap the potential for capital appreciation.
  3. The use of a covered call portfolio tends to be most beneficial to investors when the stock market posts down years (2002 & 2008) and when returns range from 0% to 10% (2007, 2011 and 2015), though the BuyWrite Index did not outperform the S&P 500 Index in 2005.
  4. Covered call writing tends to be less beneficial when stock market returns are well above 10%, such as in 2012, 2013, 2014, and 2017 (see table). 
  5. As of 3/9/18, the S&P 500 Index stood 3.00% below its all-time high of 2,872.87, set on 1/26/18, according to Bloomberg. 
  6. We believe that corporate earnings growth determines the direction of stock prices over time. 
  7. Bloomberg's 2018 and 2019 consensus earnings growth rate estimates for the S&P 500 Index were 16.59% and 10.30% as of 2/28/18. That 2018 target is well above the 0% to 10% range.
  8. From 1926-2017 (92 years), the S&P 500 posted an average annual total return of 10.16%, according to Ibbotson & Associates/Morningstar.
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance. The CBOE S&P 500 BuyWrite Index (BXM) is designed to track a hypothetical buy-write strategy on the S&P 500. It is a passive total return index based on (1) buying an S&P 500 stock index portfolio, and (2) "writing" (or selling) the near-term S&P 500 Index (SPXSM) "covered" call option.

Download a PDF of this post, please click here.

Posted on Tuesday, March 13, 2018 @ 1:59 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Search Posts
MARKET ANALYSIS
Market Commentary and Analysis
Market Commentary Video
Monthly Talking Points
Quarterly Newsletter
Market Observations
Subscribe To Receive Email
 


 PREVIOUS POSTS
Passive Investment Vehicles Have Posted The Strongest Asset Growth Since The End Of 2007
Interest Rates Policy and the Markets
U.S. Crude Oil & Natural Gas Rig Counts
A Snapshot of Growth vs. Value Investing
How The S&P 500 Index Has Performed Since Its 2018 Closing Low On 2/8
Rising Interest Rates and Stock Performance
A Snapshot of Moving Averages
A Snapshot of Volatility and Stocks
Some Investors Have Lost That Lovin' Feeling
A Snapshot of Bond Valuations
Archive
Skip Navigation Links.
Search by Topic
Skip Navigation Links.

 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Follow First Trust:  
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2024 All rights reserved.