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.”
There are currently three available buy-write funds to retail investors:
- Powershares S&P 500 BuyWrite Portfolio ETF (NYSEArca: PBP): The ETF has a 12-month yield of 10.2%, according to Invesco PowerShares.
- iPath CBOE S&P 500 BuyWrite Index ETN (NYSEArca: BWV): This product is an exchange traded note, which is an unsecured debt obligation subject to the credit worthiness of the issuing bank. [What is an ETF? — Part 12: Exchange Traded Notes]
- AdvisorShares STAR Global Buy-Write ETF (NYSEArca: VEGA): VEGA is an actively managed ETF that began trading on Sept. 18, 2012. [What is an ETF? — Part 11: Actively Managed ETFs]
For past stories in this series, visit our “What is an ETF?” category.
Max Chen contributed to this article.
This story has been updated to correct information on buy-write strategies.