Financial indexes and instruments based thereon

• US 20060100949A1
• Filed: 09/29/2005
• Published: 05/11/2006
• Est. Priority Date: 01/10/2003
• Status: Abandoned Application

• Current Assignee: Catherine T. Shalen, Robert E. Whaley, William M. Speth
• Original Assignee: Catherine T. Shalen, Robert E. Whaley, William M. Speth
• Inventors: Shalen, Catherine T., Speth, William M., Whaley, Robert E.
• Application Number:
  US11/238,396
• Publication Number:
  US 20060100949A1
• Time in Patent Office: Days
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• 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 creating an underlying asset portfolio and implementing a passive total return strategy into the financial instrument based on writing the nearby call option against that same underlying asset portfolio for a set period on or near 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). In one embodiment, the call option is held until expiration and cash settled, at which time a new call option is written for the set period. In another embodiment, the call option is written against the underlying asset portfolio at least thirty (30) days prior to when the call will expire and the call option is not cash-settled; whereby the financial instrument is a “qualified covered call” under the Internal Revenue Code.

Claims

1. A financial instrument for measuring the performance of a covered call strategy comprising:

creating an underlying asset portfolio;

writing a nearby call option against the underlying asset portfolio;

settling the call option against a calculation of a financial instrument compiled from the opening prices of component assets underlying the financial instrument; and

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

2. The financial instrument of claim 1 further including performing the calculation when all components underlying the financial instrument have opened for trading.

3. The financial instrument of claim 1 further including valuing the call option at a price equal to the volume-weighted average of the traded prices of the call option.

4. The financial instrument of claim 3 further including deriving the volume-weighted average of the traded prices of the call option excluding trades that are identified as having been executed as part of a “

spread” and

calculating the weighted average of all remaining transaction prices of the new call option, with weights equal to the fraction of total non-spread volume transacted at each price during this period.

5. The financial instrument of claim 1 further including functionally reinvesting the value of option premium deemed received from the new call option in the portfolio.

6. The financial instrument of claim 1 further including rolling the call.

7. The financial instrument of claim 1 further including calculating the financial instrument (BXM) in accordance with:

BXM_t=BXM_t-1(1+R_t)

where R_t is the daily rate of return of the portfolio.

8. The financial instrument of claim 1 further wherein the call option is cash-settled.

9. The financial instrument of claim 1 wherein the call option comprises a basket of call options.

10. The financial instrument of claim 1 wherein the call option is selected from the group comprising securities, commodities, indexes, economic indicators, and combinations thereof.

11. The financial instrument of claim 1 wherein an underlying asset is selected from the group comprising securities, commodities, indexes, economic indicators, and combinations thereof.

12. The financial instrument of claim 1 further wherein the financial instrument is an index.

13. The financial instrument of claim 1 further wherein the financial instrument is an exchange traded fund.

14. The financial instrument of claim 1 further including leveraging the financial instrument by adjusting to the desired level of risk the proportions of a long position in the underlying asset and a short position in the call options for that asset.

15. A financial instrument for measuring the performance of a covered call strategy comprising:

creating an underlying asset portfolio;

writing a nearby call option against the underlying asset portfolio;

valuing the call option at a price equal to the volume-weighted average of the traded prices of the call option.

16. The financial instrument of claim 15 further including settling the call option against a calculation of the financial instrument compiled from the opening prices of component assets underlying the financial instrument.

17. The financial instrument of claim 15 further including deriving the volume-weighted average of the traded prices of the call option excluding trades that are identified as having been executed as part of a “

spread” and

calculating the weighted average of all remaining transaction prices of the new call option, with weights equal to the fraction of total non-spread volume transacted at each price during this period.

18. The financial instrument of claim 15 further including functionally reinvesting the value of option premium deemed received from the new call option in the portfolio.

19. The financial instrument of claim 15 further including rolling the call.

20. The financial instrument of claim 15 further including calculating the financial instrument (BXM) in accordance with:

BXM_t=BXM_t-1(1+R_t)

where R_t is the daily rate of return of the portfolio.

21. The financial instrument of claim 15 further wherein the call option is cash-settled.

22. The financial instrument of claim 15 wherein the call option comprises a basket of call options.

23. The financial instrument of claim 15 wherein the call option is selected from the group comprising securities, commodities, indexes, economic indicators, and combinations thereof.

24. The financial instrument of claim 15 wherein an underlying asset is selected from the group comprising securities, commodities, indexes, economic indicators, and combinations thereof.

25. The financial instrument of claim 15 further wherein the financial instrument is an index.

26. The financial instrument of claim 15 further wherein the financial instrument is an exchange traded fund.

27. The financial instrument of claim 15 further including leveraging the financial instrument by adjusting to the desired level of risk the proportions of a long position in the underlying asset and a short position in the call options for that asset.

28. A financial instrument for measuring the performance of a covered call strategy comprising:

creating an underlying asset portfolio;

writing a nearby call option against the underlying asset portfolio a sufficient period of time such that the financial instrument is a “

qualified covered call”

under the Internal Revenue Code; and

the call option is not cash-settled.

29. The financial instrument of claim 28 including writing a nearby call option against the underlying asset portfolio at least thirty (30) days prior to when the call will expire.

30. The financial instrument of claim 28 further including calculating the financial instrument (BXM) in accordance with:

BXM_t=BXM_t-1(1+R_t)

where R_t is the daily rate of return of the portfolio.

31. The financial instrument of claim 28 wherein the call option comprises a basket of call options.

32. The financial instrument of claim 28 wherein the call option is selected from the group comprising securities, commodities, indexes, economic indicators, and combinations thereof.

33. The financial instrument of claim 28 wherein an underlying asset is selected from the group comprising securities, commodities, indexes, economic indicators, and combinations thereof.

34. The financial instrument of claim 28 further wherein the financial instrument is an index.

35. The financial instrument of claim 28 further wherein the financial instrument is an exchange traded fund.

36. The financial instrument of claim 28 further including leveraging the financial instrument by adjusting to the desired level of risk the proportions of a long position in the underlying asset and a short position in the call options for that asset.

37. A financial instrument comprising basing the financial instrument on a return of a portfolio consisting of an underlying asset and options on that underlying asset.

38. The financial instrument of claim 37 further wherein the options are call options

39. The financial instrument of claim 38 further wherein the options are out-of-the-money call options.

40. The financial instrument of claim 38 further wherein the options comprise a succession of out-of-the-money call options.

41. The financial instrument of claim 38 further including valuing the call option at a price equal to the volume-weighted average of the traded prices of the call option.

42. The financial instrument of claim 38 further wherein the call option is cash-settled.

43. The financial instrument of claim 38 wherein the call option comprises a basket of call options.

44. The financial instrument of claim 38 wherein the call option is selected from the group comprising securities, commodities, indexes, economic indicators, and combinations thereof.

45. The financial instrument of claim 37 wherein an underlying asset is selected from the group comprising securities, commodities, indexes, economic indicators, and combinations thereof.

46. The financial instrument of claim 37 further wherein the options are put options.

47. The financial instrument of claim 46 further wherein the options are at-the-money put options.

48. The financial instrument of claim 46 further wherein the options comprise a succession of at-the-money put options.

49. The financial instrument of claim 37 further wherein the options comprise a succession of out-of-the-money put options and a succession of out-of-the-money call options.

50. The financial instrument of claim 37 further wherein the financial instrument is an index.

51. The financial instrument of claim 37 further wherein the financial instrument is an exchange traded fund.

52. The financial instrument of claim 37 further including leveraging the financial instrument by adjusting to the desired level of risk the proportions of a long position in the underlying asset and a short position in the options for that asset.

53. A financial instrument comprising:

measuring the performance of a covered call strategy by selling call options on an underlying asset; and

leveraging the financial instrument by adjusting to the desired level of risk the proportions of a long position in the underlying asset and a short position in the call option for that asset.

54. The financial instrument of claim 53 further including selling at-the-money call options on an underlying asset.

55. The financial instrument of claim 53 further including selling out-of-the-money call options on an underlying asset.

56. The financial instrument of claim 53 further including holding a stock index portfolio and selling a succession of at-the-money call options on the stock index.

57. The financial instrument of claim 53 further including holding a stock index portfolio and selling a succession of out-of-the-money call options on the stock index.

58. The financial instrument of claim 57 further wherein the out-of-the-money call options comprise one-month out-of-the-money call options.

59. The financial instrument of claim 57 further wherein the out-of-the-money call options comprise 5% out-of-the-money call options.

60. The financial instrument of claim 53 further including rolling the call.

61. The financial instrument of claim 53 further including calculating the index (CCI) in accordance with:

CCI_t=CCI_t-1(1+R_t)

where R_t is the daily rate of return of the portfolio.

62. The financial instrument of claim 53 further wherein the financial instrument is an index.

63. The financial instrument of claim 53 further wherein the financial instrument is an exchange traded fund.