December 03, 2008 at 3:00 pm by Max Chen
Many investors are looking for different routes for investing to recover or continue to make profits in exchange traded funds (ETFs).
A popular investment strategy, known as “buy-write,” involves the purchase of stocks and sale of options. The strategy has created the highest premium in two decades, reports Tennille Tracy for The Wall Street Journal. The monthly premium gross for November was 8.1% – the highest percentage on record since 1988.
By utilizing buy-write strategies, people in the markets are able to sell calls that would have expired worthless. Calls is essentially the right to buy a stock at a fixed price.
These transactions engender lucrative premiums because price of options are in part determined by volatility in stock markets. One such ETF that may benefit from the premiums generated in options writing is PowerShares S&P 500 BuyWrite (PBP), which is down 32.3% year-to-date.
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