Investment Ideas 2022: Explore three key themes dominating markets where investors might uncover potential opportunities. Read More
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A typical Buy-Write strategy will hold (“Buy”) a diversified basket of stocks to mimic a particular index – the S&P 500, for instance. It will simultaneously sell (“Write”) related call options seeking to generate additional income from the premium.
a diversified basket of equities to provide broad equity exposure. May maintain similar sector weights to a broad index, but tilt towards yielding equities within each sector.
sell related call options covering all or a portion of the portfolio to generate premium income.
forfeits some potential equity upside in exchange for enhanced income today, above that from equity dividends alone.
Defensive Return Profile*
In negative or flat to single-digit markets, selling call options can provide additional returns. With its option premium “cushion,” Buy-Write strategies may demonstrate a high frequency of outperformance in these markets relative to their benchmark. Buy-Write strategies may underperform in exuberant markets (>10% 1-year returns).
*Frequency of Outperformance: Considering rolling one-year returns (measured quarterly, over 20 years), CBOE S&P 500 2% OTM Buy-Write Index—a reasonable proxy for the Buy-Write strategy universe in aggregate—vs. S&P 500 Index.
Lower Highs But Higher Lows
In the more challenging equity return environment we anticipate, a Buy-Write strategy may improve investor experience via a more defensive, muted-volatility return profile. A smoother glide path may be more likely to keep investors engaged with their investment programs—and with equities—to the benefit of their long-term financial health..
Source 1: Bloomberg and Goldman Sachs Asset Management as of September 30, 2022. Negative Return Market is defined as returns less than 0, Flat to Single-Digit Market is defined as returns from 0–9.99% and Exuberant Return Market is defined as returns greater than 10%. As of September 30, 2022, the S&P 500 Index average annual returns for the 1-, 5- and 10-year period were -15.47, 9.24% and 11.70%, respectively. Buy-Write strategies are represented by the CBOE S&P 500 2% OTM BuyWrite Index. As of September 30, 2022, the CBOE S&P 500 2% OTM BuyWrite Index average annual returns for the 1-, 5- and 10-year period were -14.58%, 3.75% and 6.62%, respectively. Analysis from October 2022 to September 2022, the common inception date of both the S&P 500 Total Return Index and the CBOE S&P 500 2% OTM BuyWrite Index. Frequency of outperformance is calculated by comparing the number of times the CBOE S&P 500 2% OTM BuyWrite Index outperformed the S&P 500 Total Return Index on a 12 month rolling return basis. A Buy-Write strategy refers to an investment that receives call premiums on an underlying equity position seeking to generate income. The CBOE S&P 500 2% OTM BuyWrite Index’s performance is not necessarily reflective of all Buy-Write strategies. The CBOE S&P 500 2% OTM BuyWrite Index is a benchmark index designed to track the performance of a hypothetical Buy-Write strategy on the S&P 500 Total Return Index. Past performance does not guarantee future results, which may vary. There is no guarantee that these objectives will be met.
Source 2: Source: Goldman Sachs Asset Management. For illustrative purposes only.
Buy-write strategies are subject to market risk, which means that the value of the securities in which it invests may go up or down in response to the prospects of individual companies, particular sectors and/or general economic conditions. They are also subject to the risks associated with writing (selling) call options, which limits the opportunity to profit from an increase in the market value of stocks in exchange for up-front cash at the time of selling the call option. In a rising market, the strategy could significantly underperform the market, and the options strategies may not fully protect it against declines in the value of the market. There may be additional risks that are not currently foreseen or considered.
Note that Buy-Write strategies are not appropriate for all investors and are not riskless investments, so investors can lose money. Goldman Sachs Asset Management does not currently manage stand-alone Buy-Write strategies. The information contained in this video does not constitute a recommendation from Goldman Sachs Asset Management. Please see additional disclosures in the end notes.
US Large Capitalization (Cap) refers to US stocks in the S&P 500 Index. This is not necessarily reflective of all Buy-Write strategies.
Upside refers to potential investment return. Call options refer to options to buy stock at a decided price. "Writing" refers to selling a call option.
Diversification does not protect an investor from market risk and does not ensure a profit. The equity market index referenced in this case is the S&P 500 Index. Equity securities are more volatile than fixed income securities and subject to greater risks.
The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 7.8 trillion benchmarked to the index, with index assets comprising approximately USD 2.2 trillion of this total. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
The CBOE S&P 500 2% OTM BuyWrite Index (BXY) is a benchmark index designed to track the performance of a hypothetical 2% out-of-the-money buywrite strategy on the S&P 500® Index. The BXY is a passive total return index based on (1) buying an S&P 500 stock index portfolio, and (2) "writing" (or selling) a near-term S&P 500 Index (SPXSM) "covered" call option, generally on the third Friday of each month. Indices are unmanaged. The figures for the index reflect the reinvestment of all income or dividends, as applicable, but do not reflect the deduction of any fees or expenses which would reduce returns. Investors cannot invest directly in indices. The indices referenced herein have been selected because they are well known, easily recognized by investors, and reflect those indices that the Investment Manager believes, in part based on industry practice, provide a suitable benchmark against which to evaluate the investment or broader market described herein.
Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go down as well as up. A loss of principal may occur.
Equity securities are more volatile than bonds and subject to greater risks. Small and mid-sized company stocks involve greater risks than those customarily associated with larger companies.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Goldman Sachs Asset Management to buy, sell, or hold any security. Views and opinions are current as of the date of this page and may be subject to change, they should not be construed as investment advice.
The information and services provided on this web site are intended for persons in the US only. Non-US persons are directed to our audience selection page.