methodology sp gsci covered call select index

7/26/2019 Methodology Sp Gsci Covered Call Select Index

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July 2014

S&P Dow Jones Indices: Index Methodology

S&P GSCI

Covered

Call Select Index

Methodology


2/17

S&P Dow Jones Indices: S&P GSCI

Covered Call Select Index Methodology 1

Table of Contents

Introduction 3

Highlights 3

The S&P GSCI Covered Call Select Index Methodology 3

Definitions 4

Index Construction 5

Approaches 5

Index Calculations 5

Index Maintenance 10

Rebalancing 10

Inclusion Criteria 10

Index Governance 11

Index Committee 11

Index Policy 12

Announcements 12

Index Dissemination 13

Tickers 13

S&P Dow Jones Indices Contact Information 14

Index Management 14

Product Management 14

Media Relations 14

Client Services 14

Disclaimer 15


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S&P Dow Jones Indices shall have no liability, contingent or otherwise, to any person or

entity for the quality, accuracy, timeliness and/or completeness of the information, the

S&P GSCI or any data included in this S&P GSCI Covered Call Select Index

Methodology, or for delays, omissions or interruptions in the delivery of the S&P GSCICovered Call Select or data related thereto. S&P Dow Jones Indices makes no warranty,

express or implied, as to the results to be obtained by any person or entity in connection

with any use of the S&P GSCI, including but not limited to the trading of or investments

in products based on or indexed or related to the S&P GSCI, any data related thereto or

any components thereof. S&P Dow Jones Indices makes no express or implied

warranties, and hereby expressly disclaims all warranties of merchantability or fitness

for a particular purpose or use with respect to the information, the S&P GSCI or any

data related thereto. Without limiting any of the foregoing, in no event shall S&P have

any liability for any special, punitive, indirect, or consequential damages (including lost

profits), in connection with any use by any person of the S&P GSCI or any products

based on or indexed or related thereto, even if notified of the possibility of such damages.


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Introduction

The S&P GSCICovered Call Select Index (the Index) seeks to simulate a covered callstrategy on a select number of the commodities from the S&P GSCI with the most activeoptions markets.

This methodology was created by S&P Dow Jones Indices to achieve the aforementionedobjective of measuring the underlying interest of each index governed by this

methodology document. Any changes to or deviations from this methodology are made inthe sole judgment and discretion of S&P Dow Jones Indices so that the index continues toachieve its objective.

Highlights

A covered call strategy is an income generating strategy that is generally used in aneutral-to-bullish market environment, where a slow and steady rise in market prices isanticipated.

Ten commodities are included in the S&P GSCI Covered Call Select Index -- Coffee,Corn, Cotton, Crude Oil, Gold, Natural Gas, Silver, Soybeans, Sugar and Wheat.

For each of the commodities included in the Index, a separate covered call index iscreated. Each such index reflects an investment in the rolling active futures contract andthe systematic writing (selling) of out-of-the-money (OTM) calls on the same contract.

Each such index seeks to provide higher returns than the corresponding S&P GSCI indexof the same commodity, with lower volatility in most market environments with theexception of when the futures market is rallying rapidly.

The ten individual covered call indices are, then, included in a composite covered callindex, on an equal-weighted basis.

The S&P GSCI Covered Call Select Index Methodology

This methodology uses various terms and definitions from the S&P GSCI IndexMethodology. Where not specifically noted otherwise in this document, the rules of theS&P GSCI Methodology will prevail. Where the terms in this document are also definedin the S&P GSCI Methodology, the definitions in this document prevail.


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Definitions

Call option. A contract between a buyer and seller whereby the buyer acquires the right,but not the obligation, to purchase a specific security at a fixed price on or before aspecified date. The seller of the call assumes the obligation of delivering the security.

Strike price. The price at which the underlying will be delivered in the event the optionis exercised.

Volatility. The degree to which the price of an underlying security tends to fluctuateover time.


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Index Construction

Approaches

Each of the individual covered call indices is calculated on a hypothetical portfolioconsisting of a long futures position and a short OTM call position, both of which arerolled based on the S&P GSCI Covered Call Designated Contract Expiration calendar(Table 1). The futures and options roll over a five-day period, starting on the firstbusiness day of each month.

Index Calculations

Calculating the Total Return of the Portfolio of an individual covered call indexThe index is calculated based on the total return of a hypothetical portfolio consisting of along futures position and a short OTM call. If its not during a roll period, the return andthe index value are calculated as follows:

)R1(II

1CF

CFR

t1tt

1t1t

tt

t

+=

=

(1)

where:

Rt = Index return on day t

It = Index level on day t

Ft = Closing price of the futures contracton day t

Ft-1 = Closing price of the futures contract on day t-1

Ct = Closing price of the call option on day t

Ct-1 = Closing price of the call option on day t-1

Five Day RollCommodity futures and options are not held to maturity. Instead, the long futures andshort options positions roll to the next Designated Contract Expiration Month over a five-day period, with 20% being replaced every business day. The roll period is the first fivebusiness days of each month. The option chosen to be rolled into is always based on thesame contract month as the futures that are being rolled into. With the substitution of theroll during the 1stthrough the 5thbusiness days for the S&P GSCI Covered Call Selectindex, the roll rules and procedures followed are those as specified in the S&P GSCIMethodology, sections VI.2(b), VI.2 (c) and VI.2 (d).


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Table 1: Contracts Included in the S&P GSCI Covered Call Select Index

Covered Call Futures and Options Roll Schedule

Trading

Facility

Commodity

(Contract) Ticker

Month: 1 2 3 4 5 6 7 8 9 10 11 1

NYM / ICE Oil (WTI Crude) CL H0 J0 K0 M0 N0 Q0 U0 V0 X0 Z0 F1 G

NYM / ICE Natural Gas NG H0 J0 K0 M0 N0 Q0 U0 V0 X0 Z0 F1 G

CBT Wheat (Chicago) W H0 H0 K0 K0 N0 N0 U0 U0 Z0 Z0 Z0 H

CBT Corn C H0 H0 K0 K0 N0 N0 U0 U0 Z0 Z0 Z0 H

CBT Soybeans S H0 H0 K0 K0 N0 N0 X0 X0 X0 X0 F1 F

ICE - US Sugar #11 SB H0 H0 K0 K0 N0 N0 V0 V0 V0 H1 H1 H

ICE - US Coffee "C" KC H0 H0 K0 K0 N0 N0 U0 U0 Z0 Z0 Z0 H

ICE - US Cotton #2 CT H0 H0 K0 K0 N0 N0 Z0 Z0 Z0 Z0 Z0 H

CMX Gold GC G0 J0 J0 M0 M0 Q0 Q0 Z0 Z0 Z0 Z0 G

CMX Silver SI H0 H0 K0 K0 N0 N0 U0 U0 Z0 Z0 Z0 H

Designated Contract Expirations during the Month

(Note 1)

Note 1: Future and option Months included in the S&P GSCI Covered Call Select Index that are rolled into during thecalendar month, starting with January 2010. Month letter codes are shown in Table 2.

Table 2: Month Letter Codes

Month Letter Code

January F

February G

March H

April J

May K

June M

July NAugust Q

September U

October V

November X

December Z


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Determining the Strike of the Call OptionFor each commodity included in the S&P GSCI Covered Call Select Index, the strikeprice of the call option to be rolled into the next Eligible Contract Month is based on the

market price level implied by the realized volatility of the respective futures market.

After the close of the last trading day of each rebalancing month, the annualized realizedvolatility of the past 21 trading days of the respective S&P GSCI Spot Index iscalculated. The 21-day realized (historical) volatility is calibrated with the number ofcalendar days left to expiration in the option contract month to be rolled into. We denotethis as vol.

365

expiretodayscalendar#*volatilityrealizedvol

252*stdevvolatilityrealized

)rr(20

1stdev

r21

1r

1S

Sr

20

0j

2

iji

20

0j

jii

1i

i

i

=

=

=

=

=

=

=

(2)

where:

Si= Closing price of the S&P GSCI Spot Index on the ithtrading day

ri= Daily return of the S&P GSCI Spot Index on the ithtrading day

ir = The 21-day average daily return of the S&P GSCI Spot Index on the ith

tradingday

The strike of the new call option, K, is 1 volabove the close of the futures contract to berolled into on the last trading day of each month.

)1( volFK newt += (3)


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where:

Ftnew= Closing price of the futures contract to be rolled into.

If the calculated strike price, K,falls between two option strikes, the call option that isimmediately above Kis chosen

An example of strike determination, for Crude Oil:

Date: April 30th2009

The index will begin rolling into the July futures and options on May 1st2009

July crude oil futures settlement price on April 30th= $52.28/bbl

21-day historic volatility of the S&P GSCI Spot Crude Oil Index on April 30 th=54.73%

Calendar days to options expiration on April 30th= 48 days Target strike = $52.28/bbl + (52.28 * 54.73% * sqrt(48 / 365)) = $62.66/bbl

On May 1st, the index begins rolling into a long position in the July futures and ashort position in the July 63 calls.

Five-Day Staggered RollThe roll period starts on the first business day of each calendar month. With eachsuccessive day, 20% of the expiring futures and options are replaced by the new contractsat the close and assumed official settlement prices. Exhibit 1 shows an example of theweights of the two maturities.

Exhibit 1: Five Day Roll ExampleDate Roll Out Weight Roll In Weight

5/29/2009 200907 100% 0%

6/1/2009 200907 80% 200908 20%

6/2/2009 200907 60% 200908 40%

6/3/2009 200907 40% 200908 60%

6/4/2009 200907 20% 200908 80%

6/5/2009 200907 0% 200908 100%

The return of the portfolio and the index value are calculated as follows:

)R1(II

1)CF(W)CF(W

)CF(W)CF(WR

t1tt

new

1t

new

1t

new

1t

old

1t

old

1t

old

1t

new

t

new

t

new

1t

old

t

old

t

old

1tt

+=

+

+

=

(4)

where:Wt

new= Weight of the new futures / optionsFt

new= Closing price of the new futures


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Ctnew= Closing price of the new call option

Wtold= Weight of the old futures / options

Ftold= Closing price of the new futures

Ctold

= Closing price of the old call option

Calculating the Total Return of the Portfolio of the set of covered call indicesThe composite index is calculated using the total returns of the individual covered callindices, weighted by their respective daily weights. Initially the ten commodities areallocated equal weights and are reset annually during the January roll period. The returnand the index value of the portfolio of the set of covered call indices are calculated asfollows:

=c

c

t

c

tt DWRPR )(

)1(1 ttt PRPIPI +=

where:

PRt= Total Return of the Portfolio on day t

PIt= Portfolio Index on day t

Rtc= Return of Commodity con day t

DWtc= Daily Weight of Commodity con day t


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Index Maintenance

Rebalancing

The S&P GSCI Covered Call Select Index and its representative constituents arereviewed on an annual basis along with the parent S&P GSCI during the January rollperiod. Weights used in the composite index are reset to equal once a year, on the S&PGSCI Business Day prior to the beginning of the January roll period.

Inclusion Criteria

The S&P GSCI Covered Call Select Index selects its constituents from the S&P GSCIcandidates. Commodity candidate annual options volume must be a minimum of 10% ofthe underlying commodity annual volume to be considered for inclusion in the S&PGSCI Covered Call Select Index. The S&P GSCI annual volume measurement period isgenerally from September to August of the most recent prior year at each January review.


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Index Governance

Index Committee

The S&P GSCI Committee maintains the S&P GSCI Covered Call Select Index. TheIndex Committee meets regularly. At each meeting, the Index Committee reviews anysignificant market events. In addition, the Index Committee may revise index policy fortiming of rebalancings or other matters.

S&P Dow Jones Indices considers information about changes to its indices and relatedmatters to be potentially market moving and material. Therefore, all Index Committeediscussions are confidential.

For information on Quality Assurance and Internal Reviews of Methodology, please refer

to S&P Dow Jones Indices Commodities Indices Policies & Practices document located

under the Resource Center on our Web site,www.spdji.com.
http://www.spdji.com/http://www.spdji.com/http://www.spdji.com/http://www.spdji.com/


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Index Policy

Announcements

Announcements of the daily index values are made after the futures market close eachday.

Announcements of the new call strike price to be rolled into are made following the closeof business on the last business day of each month.

The index is calculated daily when the various commodity exchanges are open forofficial trading and official settlement prices are provided, excluding holidays andweekends.

In situations where an exchange is forced to close early due to unforeseen events, such ascomputer or electric power failures, weather conditions or other events, S&P Dow JonesIndices will calculate the value of the index based on most recent option price published.If an exchange fails to open due to unforeseen circumstances, S&P Dow Jones Indicesmay determine not to publish the index for that day.

For information on Calculations and Pricing Disruptions, Expert Judgment, Data

Hierarchy and Unexpected Exchange Closures, please refer to S&P Dow Jones Indices

Commodities Indices Policies & Practices document located under the Resource Center

on our Web site,www.spdji.com.
http://www.spdji.com/http://www.spdji.com/http://www.spdji.com/http://www.spdji.com/


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Index Dissemination

Historical index returns are available through S&P Dow Jones Indices index data groupfor subscription via FTP.

Tickers

Index Bloomberg

S&P GSCI Covered Call Select Index Spot SPCLCI

S&P GSCI Covered Call Select Index Excess Return SPCLCIP

S&P GSCI Covered Call Select Index Total Return SPCLCITR

S&P GSCI Covered Call Chicago Wheat Index Spot SPCLWH

S&P GSCI Covered Call Chicago Wheat Index Excess Return SPCLWHP

S&P GSCI Covered Call Chicago Wheat Index Total Return SPCLWHTR

S&P GSCI Covered Call Corn Index Spot SPCLCN

S&P GSCI Covered Call Corn Index Excess Return SPCLCNP

S&P GSCI Covered Call Corn Index Total Return SPCLCNTR

S&P GSCI Covered Call Soybeans Index Spot SPCLSO

S&P GSCI Covered Call Soybeans Index Excess Return SPCLSOP

S&P GSCI Covered Call Soybeans Index Total Return SPCLSOTR

S&P GSCI Covered Call Sugar Index Spot SPCLSB

S&P GSCI Covered Call Sugar Index Excess Return SPCLSBPS&P GSCI Covered Call Sugar Index Total Return SPCLSBTR

S&P GSCI Covered Call Crude Oil Index Spot SPCLCL

S&P GSCI Covered Call Crude Oil Index Excess Return SPCLCLP

S&P GSCI Covered Call Crude Oil Index Total Return SPCLCLTR

S&P GSCI Covered Call Natural Gas Index Spot SPCLNG

S&P GSCI Covered Call Natural Gas Index Excess Return SPCLNGP

S&P GSCI Covered Call Natural Gas Index Total Return SPCLNGTR

S&P GSCI Covered Call Gold Index Spot SPCLGC

S&P GSCI Covered Call Gold Index Excess Return SPCLGCP

S&P GSCI Covered Call Gold Index Total Return SPCLGCTR

S&P GSCI Covered Call Silver Index Spot SPCLSI

S&P GSCI Covered Call Silver Index Excess Return SPCLSIPS&P GSCI Covered Call Silver Index Total Return SPCLSITR

S&P GSCI Covered Call Coffee Index Spot SPCLKC

S&P GSCI Covered Call Coffee Index Excess Return SPCLKCP

S&P GSCI Covered Call Coffee Index Total Return SPCLKCTR

S&P GSCI Covered Call Cotton Index Spot SPCLCT

S&P GSCI Covered Call Cotton Index Excess Return SPCLCTP

S&P GSCI Covered Call Cotton Index Total Return SPCLCTTR


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S&P Dow Jones Indices Contact Information

Index Management

David M. Blitzer, Ph.D. Managing Director & Chairman of the Index Committee

[email protected] +1.212.438.3907

Mark Berkenkopf Associate Director


Product Management

Jodi Gunzberg Vice President


Marya Alsati-Morad Associate Director


Media Relations

David Guarino Communications


Client Services

[email protected]

Beijing +86.10.6569.2770

Dubai +971.4.371.7131

Hong Kong +852.2532.8000

London +44.20.7176.8888

New York +1.212.438.2046

or

+1.877.325.5415

Sydney +61.2.9255.9802

Tokyo +81.3.4550.8564
mailto:[email protected]:[email protected]:[email protected]


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Disclaimer

S&P Dow Jones Indices LLC, a part of McGraw Hill Financial 2014. All rightsreserved. Standard & Poors and S&Pare registered trademarks of Standard & PoorsFinancial Services LLC (S&P), a part of McGraw Hill Financial. Dow Jones is aregistered trademark of Dow Jones Trademark Holdings LLC (Dow Jones).Trademarks have been licensed to S&P Dow Jones Indices LLC. Redistribution,reproduction and/or photocopying in whole or in part are prohibited without written

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It is not possible to invest directly in an index. Exposure to an asset class represented byan index is available through investable instruments based on that index. S&P Dow JonesIndices does not sponsor, endorse, sell, promote or manage any investment fund or otherinvestment vehicle that is offered by third parties and that seeks to provide an investment

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S&PDowJones Indices: S&PGSCI

CoveredCall Select Index Methodology 16

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methodology sp gsci covered call select index

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