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S&P launches GSCI Crude Oil Covered Call Index

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Standard & Poor’s has launched the S&P GSCI Crude Oil Covered Call Index, an index that will offer investors exposure to crude oil commodity price returns at lower levels of vol

Standard & Poor’s has launched the S&P GSCI Crude Oil Covered Call Index, an index that will offer investors exposure to crude oil commodity price returns at lower levels of volatility.

S&P says the index satisfies demand from commodity investors seeking more stable, long-only exposure to crude oil markets at a time of historically high volatility in crude oil prices.

It seeks to simulate a ‘covered call’ strategy on the world’s most active listed crude oil futures product, the WTI Crude Oil contract traded on the Nymex, an exchange owned by The CME Group.

A covered call strategy is an income-generating strategy used in neutral to bullish market environments, where a slow rise in market prices is anticipated. 

The index reflects an investment in the rolling active WTI Crude Oil futures contract, and the systematic writing of ‘out-of-the-money’ calls on the same contract.

It is calculated on a hypothetical portfolio consisting of a long futures position and a short out of the money call position, both of which are rolled monthly. 

‘Allocating a portion of an investment portfolio to commodities has historically provided better returns, but with less overall volatility than an equity-only portfolio,’ says Michael G. McGlone, director of commodity indexing, Standard & Poor’s. ‘Utilising the S&P GSCI Crude Oil Covered Call Index, investors may now be able to achieve higher returns and lower volatility.’

The index is based on the methodology of the S&P GSCI, a widely tracked commodity index, and forms part of the next generation of the S&P GSCI family of indices for commodity investors.

In addition to calculating indices by commodity sector, Standard & Poor’s offers sub-indices of the GSCI on a single component, multi-currency, and forward month basis.

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