European index provider Stoxx has launched the Dow Jones Euro Stoxx 50 PutWrite Index.
The index replicates a "reverse convertible" investment strategy and measures the performance of a hypothetical portfolio consisting of monthly put options on the Dow Jones Euro Stoxx 50 Index.
The monthly put options are fully collateralized by money market investments in the three month Euribor market (euro interbank offered rate).
The index is the first of its kind in Europe and is designed to underlie financial products such as exchange-traded funds.
"The Dow Jones Euro Stoxx 50 PutWrite Index is a unique and objective measurement tool for market participants who want to follow a collateralized put strategy for the euro zone," says Ricardo Manrique, chief executive officer, Stoxx. "By combining money market investments and put options on Europe’s most liquid listed options contract – based on the Dow Jones Euro Stoxx 50 Index, we are adding another highly tradable and replicable index to the Dow Jones Stoxx Strategy Index family."
Each month the Dow Jones Euro Stoxx 50 PutWrite Index rolls from the previously expiring put options contracts into the new one-month put options contracts. The number of put options is determined by the total amount of the collateralization. The money market investment, the option premium and the interest earned must cover the potential worst-case loss on the underlying options contracts.