Home   Logon   Mobile Site   Research and Commentary   About Us   Call 1.800.621.1675 or Email Us       Follow Us: 

Search by Ticker, Keyword or CUSIP       
 
 
 
Blog Home
Bob Carey
Chief Market Strategist
Click for Bio

Follow Bob on Twitter Follow Bob on LinkedIn View Videos on YouTube
 

  This Covered Call Index Tends To Outperform The S&P 500 When Stock Returns Are Modest Or Negative
Posted Under: Conceptual Investing
Supporting Image for Blog Post

 
View from the Observation Deck  
  1. From 2003-2020, the CBOE S&P 500 BuyWrite Index (an index designed to measure a covered call strategy) outperformed the S&P 500 Index in just four of the 18 calendar years. We chose 2003 because it was the first year of a new bull market. 
  2. For comparative purposes, from 1926-2020 (95 years), the S&P 500 Index posted an average annual total return of 10.28%, according to Morningstar/Ibbotson Associates.
  3. While covered call options can generate an attractive level of current income, they can also cap the potential for capital appreciation.
  4. The use of a covered call portfolio tends to be most beneficial to investors when the stock market posts down years (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 or in 2018.
  5. Covered call writing tends to be less beneficial when stock market returns are above 10%, such as in 2010, 2012, 2013, 2014, 2016, 2017, 2019 and 2020 (see table). 
  6. A Bloomberg survey of 22 equity strategists found that their average 2021 year-end price target for the S&P 500 Index was 4,199 as of 5/14/21, according to its own release. The highest and lowest estimates were 4,600 and 3,800, respectively. 
  7. As of 5/14/21, the S&P 500 Index stood at 4,173.85, 1.39% below its all-time high of 4,232.60 set on 5/7/20, according to Bloomberg. That currently puts the index right around the 4,199 average target. 
  8. The 4,199 average price target suggests there is a chance the S&P 500 Index could finish the year within proximity of where it stands today. 
  9. If so, the remainder of 2021 could resemble the market climate described in point 4.    
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 Index is an unmanaged index 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, May 18, 2021 @ 1:05 PM • Post Link Share: 
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
Weekly Market Commentary
Weekly Market Watch
Monthly Talking Points
Quarterly Newsletter
Market Observations
Subscribe To Receive Email
 


 PREVIOUS POSTS
US Stock Markets Ended May 14, 2021
US Economy and Credit Markets Ended May 14, 2021
Commodities Are Garnering More Attention From Investors
How Communication Services Has Fared Since Its Inception (September 2018)
US Stock Markets Ended May 7, 2021
US Economy and Credit Markets Ended May 7, 2021
A Global Snapshot Of Government Bond Yields
A Snapshot Of Bond Valuations
US Stock Markets Ended April 30, 2021
US Economy and Credit Markets Ended April 30, 2021
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.
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 © 2022 All rights reserved.