Buy-write indexes

• US 20030225658A1
• Filed: 01/10/2003
• Published: 12/04/2003
• Est. Priority Date: 06/03/2002
• Status: Abandoned Application

• Current Assignee: Chicago Board Options Exchange Incorporated (Cboe Global Markets, Inc.)
• Original Assignee: Chicago Board Options Exchange Incorporated (Cboe Global Markets, Inc.)
• Inventors: Whaley, Robert E.
• Application Number:
  US10/340,035
• Publication Number:
  US 20030225658A1
• Time in Patent Office: Days
• US Class Current: 705/36
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A financial instrument in accordance with the principles of the present invention provides a passive total return index based on writing the nearby call option against that same underlying asset portfolio for a set period on the day the previous nearby call option contract expires. The call written will have that set period remaining to expiration, with an exercise price just above the prevailing underlying asset price level (i.e., slightly out of the money). The call option is held until expiration and cash settled, at which time a new call option is written for the set period.

Claims

1. A method of creating a financial instrument comprising:

writing a nearby call option against an underlying asset portfolio;

holding the call option; and

writing a new nearby call option against the underlying asset portfolio.

2. The method of making a financial instrument of claim 1 further wherein the call option is cash-settled.

3. The method of making a financial instrument of claim 1 further wherein the call option is held until expiration.

4. The method of making a financial instrument of claim 1 further wherein the premium collected from selling the call is added to the total value of the financial instrument.

5. The method of making a financial instrument of claim 1 wherein the delta is 0.5.

6. The method of making a financial instrument of claim 1 wherein the call option comprises a basket of call options.

7. The method of making a financial instrument of claim 6 wherein the basket of call options comprises call options with different deltas.

8. The method of making a financial instrument of claim 7 wherein the average delta is 0.5.

9. The method of making a financial instrument of claim 1 wherein the call option comprises call options with a constant time to expiration.

10. The method of making a financial instrument of claim 9 wherein the time to expiration is the next available expiration date.

11. The method of making a financial instrument of claim 1 wherein the call option comprises call options with different times to expiration.

12. The method of making a financial instrument of claim 1 wherein any dividends paid on the underlying asset portfolio are invested in more of the underlying asset portfolio.

13. The method of making a financial instrument of claim 1 wherein the call option comprises a security call option.

14. The method of making a financial instrument of claim 12 wherein the call option comprises a stock call option.

15. The method of making a financial instrument of claim 1 wherein the call option comprises a commodity call option.

16. The method of making a financial instrument of claim 1 wherein the call option comprises a stock index call option.

17. The method of making a financial instrument of claim 16 wherein the stock index call option is the Standard &

Poor'"'"'s ®

500 Index.

18. The method of making a financial instrument of claim 1 wherein an underlying asset comprises a stock.

19. The method of making a financial instrument of claim 18 wherein the stock comprises a basket of stocks.

20. The method of making a financial instrument of claim 1 wherein an underlying asset comprises a basket of stocks.

21. The method of making a financial instrument of claim 1 wherein an underlying asset comprises an exchange-traded fund.

22. The method of making a financial instrument of claim 1 wherein an underlying asset comprises an exchange-traded future.

23. The method of making a financial instrument of claim 1 wherein the underlying asset portfolio is selected from the group comprising a security, a derivative and a commodity.

24. The method of making a financial instrument of claim 1 wherein the financial instrument is an index.

25. The method of making a financial instrument of claim 24 wherein the index is updated on a daily basis.

26. The method of making a financial instrument of claim 24 wherein the index is disseminated on a daily basis.

27. The method of making a financial instrument of claim 1 wherein the financial instrument is an exchange-traded fund.

113. The method of making a financial instrument of claim 1 further wherein the options are held until expiration.

28. A method of making a financial instrument comprising:

identifying nearby calls with adjacent exercise prices and deltas that straddle an underlying asset portfolio price level;

identifying second nearby calls with adjacent exercise prices and deltas that straddle the underlying asset portfolio price level;

writing the calls;

weighing the nearby and second nearby call option portfolios such that the weighted average time to maturity is a selected number of days; and

rebalancing the position.

29. The method of making a financial instrument of claim 28 wherein the portfolio weights for the calls at each maturity are set such that the portfolio has the selected delta.

30. The method of making a financial instrument of claim 29 wherein the selected delta is 0.5.

31. The method of making a financial instrument of claim 28 wherein the selected time to expiration is 30 days.

32. The method of making a financial instrument of claim 28 wherein cash dividends paid on the underlying asset portfolio are invested in more of the underlying asset portfolio.

33. The method of making a financial instrument of claim 28 wherein the call comprises a security call option.

34. The method of making a financial instrument of claim 33 wherein the call comprises a stock call option.

35. The method of making a financial instrument of claim 28 wherein the call comprises a commodity call option.

36. The method of making a financial instrument of claim 28 wherein the call comprises a stock index call option.

37. The method of making a financial instrument of claim 36 wherein the stock index call option is the Standard &

Poor'"'"'s®

500 Index.

38. The method of making a financial instrument of claim 28 wherein an underlying asset comprises a stock.

39. The method of making a financial instrument of claim 38 wherein the stock comprises a basket of stocks.

40. The method of making a financial instrument of claim 28 wherein an underlying asset comprises a basket of stocks.

41. The method of making a financial instrument of claim 28 wherein an underlying asset comprises an exchange-traded fund.

42. The method of making a financial instrument of claim 28 wherein an underlying asset comprises an exchange-traded future.

43. The method of making a financial instrument of claim 28 wherein the underlying asset portfolio is selected from the group comprising a security, a derivative and a commodity.

44. The method of making a financial instrument of claim 28 wherein the financial instrument is an index.

45. The method of making a financial instrument of claim 44 wherein the index is updated on a daily basis.

46. The method of making a financial instrument of claim 44 wherein the index is disseminated on a daily basis.

47. The method of making a financial instrument of claim 28 wherein the financial instrument is an exchange-traded fund.

48. A method of making a financial instrument comprising writing a call option against a same underlying asset portfolio for a set period near the date the previous call option contract expires, the call option having an exercise price just above the prevailing underlying asset portfolio level and having the same set period remaining to expiration as the previous call option contract.

49. The method of making a financial instrument of claim 48 further wherein the call option is written on the date the previous call option contract expires.

50. The method of making a financial instrument of claim 48 further wherein the call option is cash settled.

51. The method of making a financial instrument of claim 48 further wherein the call option is held until expiration.

52. The method of making a financial instrument of claim 48 wherein the call option comprises a security call option.

53. The method of making a financial instrument of claim 52 wherein the call option comprises a stock call option.

54. The method of making a financial instrument of claim 48 wherein the call option comprises a commodity call option.

55. The method of making a financial instrument of claim 48 wherein the call option comprises a stock index call option.

56. The method of making a financial instrument of claim 55 wherein the stock index call option is the Standard &

Poor'"'"'s®

500 Index.

57. The method of making a financial instrument of claim 48 wherein an underlying asset comprises a security.

58. The method of making a financial instrument of claim 57 wherein the security comprises a stock.

59. The method of making a financial instrument of claim 58 wherein the stock comprises a basket of stocks.

60. The method of making a financial instrument of claim 48 wherein an underlying asset comprises a basket of stocks.

61. The method of making a financial instrument of claim 48 wherein an underlying asset comprises an exchange traded fund.

62. The method of making a financial instrument of claim 48 wherein an underlying asset comprises an exchange-traded future.

63. The method of making a financial instrument of claim 48 wherein the underlying asset portfolio is selected from the group comprising a security, a derivative and a commodity.

64. The method of making a financial instrument of claim 48 wherein the financial instrument is an index.

65. The method of making a financial instrument of claim 64 wherein the index is updated on a daily basis.

66. The method of making a financial instrument of claim 64 wherein the index is disseminated on a daily basis.

67. The method of making a financial instrument of claim 48 wherein the financial instrument is an exchange-traded fund.

68. A financial instrument comprising a passive total return based on writing the nearby call option against that same underlying asset portfolio for a set period near the day the previous nearby call option contract expires.

69. The financial instrument of claim 68 further wherein the nearby call option is written on the date the previous call option contract expires.

70. The financial instrument of claim 68 further wherein the call written has the same set period remaining to expiration.

71. The financial instrument of claim 68 further wherein the call written has an exercise price just above the prevailing underlying asset portfolio price level.

72. The financial instrument of claim 68 further wherein the call is held until expiration and cash settled, at which time a new call option is written for the set period.

73. The financial instrument of claim 68 wherein the call option comprises a security call option.

74. The financial instrument of claim 73 wherein the call option comprises a stock call option.

75. The financial instrument of claim 68 wherein the call option comprises a commodity call option.

76. The financial instrument of claim 68 wherein the call option comprises a stock index call option.

77. The financial instrument of claim 76 wherein the stock index call option is the Standard &

Poor'"'"'s®

500 Index.

78. The financial instrument of claim 68 wherein an underlying asset comprises a stock.

79. The financial instrument of claim 78 wherein the stock comprises a basket of stocks.

80. The financial instrument of claim 68 wherein an underlying asset comprises a basket of stocks.

81. The financial instrument of claim 68 wherein an underlying asset comprises an exchange traded fund.

82. The financial instrument of claim 68 wherein an underlying asset comprises an exchange-traded future.

83. The financial instrument of claim 68 wherein the underlying asset portfolio is selected from the group comprising a security, a derivative and a commodity.

84. The financial instrument of claim 68 wherein the financial instrument is an index.

85. The financial instrument of claim 84 wherein the index is updated on a daily basis.

86. The financial instrument of claim 84 wherein the index is disseminated on a daily basis.

87. The financial instrument of claim 68 wherein the financial instrument is an exchange traded fund.

88. A method of making a financial instrument comprising:

buying a put option against an underlying asset portfolio;

holding the put option;

investing any dividends paid on the underlying asset portfolio in more of the underlying asset portfolio; and

buying a new put option against the underlying asset portfolio.

89. The method of making a financial instrument of claim 88 further wherein the put option is held until expiration.

90. The method of making a financial instrument of claim 88 wherein the put option comprises a basket of put options.

91. The method of making a financial instrument of claim 90 wherein the basket of put options comprises put options with different deltas.

92. The method of making a financial instrument of claim 91 wherein the average delta is 0.5.

93. The method of making a financial instrument of claim 88 wherein the put option comprises put options with a constant time to expiration.

94. The method of making a financial instrument of claim 93 wherein the time to expiration is the next available expiration date.

95. The method of making a financial instrument of claim 88 herein the put option comprises put options with different times to expiration.

96. The method of making a financial instrument of claim 88 wherein the put option comprises a security put option.

97. The method of making a financial instrument of claim 96 wherein the security put option comprises a stock put option.

98. The method of making a financial instrument of claim 88 herein the put option comprises a commodity put option.

99. The method of making a financial instrument of claim 88 wherein the put option comprises a stock index put option.

100. The method of making a financial instrument of claim 99 wherein the stock index put option is the Standard &

Poor'"'"'s®

500 Index.

101. The method of making a financial instrument of claim 88 wherein the asset comprises a security.

102. The method of making a financial instrument of claim 101 wherein the security comprises a stock.

103. The method of making a financial instrument of claim 102 wherein the stock comprises a basket of stocks.

104. The method of making a financial instrument of claim 88 wherein the asset comprises a basket of stocks.

105. The method of making a financial instrument of claim 88 wherein the asset comprises an exchange-traded fund.

106. The method of making a financial instrument of claim 88 wherein the asset comprises an exchange-traded future.

107. The method of making a financial instrument of claim 88 wherein the asset portfolio is selected from the group comprising a security, a derivative and a commodity.

108. The method of making a financial instrument of claim 88 wherein the financial instrument is an index.

109. The method of making a financial instrument of claim 108 wherein the index is updated on a daily basis.

110. The method of making a financial instrument of claim 108 wherein the index is disseminated on a daily basis.

111. The method of making a financial instrument of claim 88 wherein the financial instrument is an exchange-traded fund.

112. A financial instrument comprising:

buying a put option and writing a call option against an underlying asset portfolio;

holding the put option and call option;

investing any dividends paid on the underlying asset portfolio in more of the underlying asset portfolio; and

buying a new put option and selling a call option against the underlying asset portfolio.

114. The method of making a financial instrument of claim 112 wherein the options comprises a basket of options.

115. The method of making a financial instrument of claim 114 wherein the basket of options comprises options with different deltas.

116. The method of making a financial instrument of claim 115 wherein the average delta is 0.5.

117. The method of making a financial instrument of claim 112 wherein the option comprises options with a constant time to expiration.

118. The method of making a financial instrument of claim 117 wherein the time to expiration is the next available expiration date.

119. The method of making a financial instrument of claim 112 wherein the option comprises options with different times to expiration.

120. The method of making a financial instrument of claim 112 wherein the option comprises a security option.

121. The method of making a financial instrument of claim 120 wherein the security option comprises a stock option.

122. The method of making a financial instrument of claim 112 wherein the option comprises a commodity option.

123. The method of making a financial instrument of claim 112 wherein the option comprises a stock index option.

124. The method of making a financial instrument of claim 123 wherein the stock index option is the Standard &

Poor'"'"'s®

500 Index.

125. The method of making a financial instrument of claim 112 wherein an underlying asset comprises a security.

126. The method of making a financial instrument of claim 125 wherein the security comprises a stock.

127. The method of making a financial instrument of claim 126 wherein the stock comprises a basket of stocks.

128. The method of making a financial instrument of claim 112 wherein an underlying asset comprises a basket of stocks.

129. The method of making a financial instrument of claim 112 wherein an underlying asset comprises an exchange-traded fund.

130. The method of making a financial instrument of claim 112 wherein an underlying asset comprises an exchange-traded future.

131. The method of making a financial instrument of claim 112 wherein an underlying asset portfolio is selected from the group comprising a security, a derivative and a commodity.

132. The method of making a financial instrument of claim 112 wherein the financial instrument is an index.

133. The method of making a financial instrument of claim 132 wherein the index is updated on a daily basis.

134. The method of making a financial instrument of claim 132 wherein the index is disseminated on a daily basis.

135. The method of making a financial instrument of claim 112 wherein the financial instrument is an exchange-traded fund.