Buy-Write ETFs Mimic Covered Call Strategy | ETF Trends

More exchange traded fund firms plan to launch buy-write ETFs that provide investors with an indexed version of a covered call strategy.

PowerShares S&P 500 BuyWrite Portfolio (NYSEArca: PBP) is the largest of the group by assets with nearly $100 million. It has an expense ratio of 0.75%.

The ETF invests 80% or more in S&P 500 stocks and sells or “writes” covered calls. Specifically, the fund sells one-month at-the-money S&P 500 call options against the portfolio at regular intervals.

The ETF is based on the CBOE S&P 500 BuyWrite Index. Buy-write strategies “provide option premium income that can help cushion downside moves in an equity portfolio, but buy-writes often underperform stocks in rising markets,” according to the CBOE. “Buy-write strategies have an added attraction to some investors in that buy-writes can help lessen the overall volatility in many portfolios.”

The iPath CBOE S&P 500 BuyWrite Index ETN (NYSEArca: BWV) is an exchange traded fund that tracks the same index and is issued by Barclays.  Also, AdvisorShares has filed paperwork to launch a global buy-write ETF.

PowerShares S&P 500 BuyWrite Portfolio is trailing the S&P 500 by a slight margin in 2011. The ETF “hasn’t exactly throttled the S&P 500, but it’s a decent conservative play that doesn’t grab a ton of press,” notes.