Chicago Board Options Exchange has launched the CBOE S&P 500 Range-Bound Premium Income Index, reflecting the performance of a hypothetical portfolio of short-term Treasury bills and exchange-traded FLEX options based on the S&P 500 Index. The index may serve as the basis for future investment products, including ETFs, aimed at investors seeking consistent income distributions while taking the view that short-term equity returns will be range-bound.

The CBOE S&P 500 Range-Bound Premium Income Index seeks to provide a high level of income through trading activity on S&P 500 Index options as well as the interest earned on a collateral portfolio of Treasury securities.

The CBOE S&P 500 Range-Bound Premium Income Index is designed to track the returns of an investment that, over a period of approximately one month, seeks to provide a target level of premium income while at the same time minimizing the risk of loss through the use of options positions.

“In the current low-interest-rate environment, the search for income has led many investors to employ higher-yielding assets that may not be of the highest quality, or long-duration bonds that may see negative price returns when interest rates rise,” said William Speth, Vice President of Research and Product Development, CBOE. “This new range-bound premium income index is designed to provide investors with a unique source of income that we believe has a low sensitivity to duration, credit and equity risks.”

The strategy aims to deliver consistent monthly income distributions that have low correlations to returns from US domestic fixed-income markets and are neutral to the performance of the US equity markets. It sets the upper and lower bounds for the price return of the S&P 500 Index each month (the “range”) to attempt to meet two objectives: firstly, to receive a target level of premium income through sale and purchase of FLEX options and secondly, to reduce the possibility of loss from settlement of the options due to the price return of S&P 500 Index being outside the range at month’s end.

Values for the index will be published at the end of each trading day and can be accessed on the CBOE website and through quote vendors.

The SPRI is the newest addition to CBOE’s expanding family of target-outcome indices which focus on delivering returns designed around specific goals, rather than an arbitrary measure of risk or opportunity.