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SGI Enhanced Buy Write US

Index level: 1815.10 as of 18/10/2017

Main characteristics

Bloomberg Code SGIXBWU
Inception Date 16/04/2007
Return Type Net Return
Currency USD
CALCULATED_BY S&P Dow Jones

Objective

The SGI Enhanced BuyWrite US Index (the Index) tracks the performance of an enhanced buy-write strategy based on the S&P 500® Total Return Index (the Underlying Index).
 
Generally, a “buy-write” or “covered call” strategy is an investment strategy in which an investor simultaneously buys stocks and sells (or “writes”) call options on each purchased stock with strike prices equal to or slightly higher than the prices of the stocks at the time the options are priced.
 
In consideration for giving up the potential appreciation of the stock above the strike price, the investor receives an “option premium” for the sale of the call options which helps mitigate any depreciation of the stock underlying the call option.
 
The buy-write strategy used by the Index is “enhanced” because it adjusts the call options’ strike prices according to market trends.

Mechanism

The Index tracks the performance of a buy-write strategy consisting of:
 
1. A hypothetical long investment in the S&P 500 Total Return Index; and
2. The hypothetical sale of a succession of 1-month call options on the S&P 500® Index (the “SPX Index”) listed on the Chicago Board Options Exchange.
 
The two positions are deemed held in equal notional amounts. The strike prices of the call options are determined based on market trends, as measured by comparing the performance of the Underlying Index over the previous month to the performance of the Underlying Index over the previous twelve months.
 
In a bullish (or upwardly-trending) market, the Index approach is similar to that of a traditional buy-write strategy, in that the strike price of the option is set above the then-current level of the SPX Index (approximately 105% of the level of the SPX Index). The option is therefore out-of-themoney for the option buyer, which decreases the corresponding option premium deemed incorporated in the Index, but allows for participation in the appreciation of the SPX Index up to the strike price (i.e. above the then-current level of the SPX Index).
 
In a bearish (or downwardly-trending) market, however, the strike price of the option is set below the then-current level of the SPX Index (approximately 95% of the level of the SPX Index). The option is therefore in-the-money, which increases the option premium deemed incorporated in the Index, but eliminates any opportunity for participation in any performance of the SPX Index above the then-current level.
 
Index Adjustment Factor =
0.50% p.a. deducted daily from the Index level


The SGI Enhanced Buy Write US (USD - TR) (The “Index”) is the property of SG, which has contracted with S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC) (“S&P Dow Jones Indices”) to maintain and calculate the Index. S&P® is a registered trademarks of Standard & Poor’s Financial Services LLC (“SPFS”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and these trademarks have been licensed to S&P Dow Jones Indices. “Calculated by S&P Dow Jones Indices Custom” and its related stylized mark(s) are service marks of S&P Dow Jones Indices and have been sublicensed for certain purposes by SG. Neither S&P Dow Jones Indices, SPFS, Dow Jones nor any of their affiliates shall be liable for any errors or omissions in calculating the Index. The S&P 500® Total Return index is the exclusive property of S&P Dow Jones Indices, its affiliates and/or their third party licensor(s) and has been licensed for use by SG in connection with the Index.
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