Yield enhancement on Asian equity indexes through call overwriting

Call overwriting, or the strategy of shorting calls on stocks one owns, is one of the best-known yield-enhancement techniques for equity investors. This short-volatility strategy, also known as ‘covered call writing’ or a ‘buy-write strategy’, is so popular that the Chicago Board Options Exchange (CBOE) has constructed indexes that specifically track the performance of call-overwriting strategies. The first buy-write strategy index – the BXM, introduced in 2002 – is based on a strategy of selling monthly covered at-the-money (ATM) calls on the S&P 500. Numerous empirical studies have shown that, relative to the S&P 500 itself, the BXM generates superior returns on a risk-adjusted basis, and sometimes (depending on the period) even on an absolute basis as well, i.e. with both higher average returns and lower volatility.