BEP, What?

• Posted by Adam Warner
• on November 16th, 2009

Here’s an eternal mystery, why does BEP sit above NAV?

To refresh, BEP is a closed-end fund that tracks BXM. BXM is a simple Buy-write Index created by the CBOE to track the performance of a hypothetical buy-write. The hypothetical buy-write hypothetically buys the SPX and writes the just-above near money strike each cycle. It rolls each expiration day. it’s REALLY easy to replicate yourself, or invest in an open-end mutual fund that does it for you.

So why does BEP merit a premium to NAV? You (almost) literally can’t short it, so it’s rather tough to arb. So fine, it can stay out of line, but I still have no clue why someone would buy it at a 10% premium to NAV to begin with. They’re going to pay a distribution soon (it’s twice per year, and the last one was $1 in June), so they have that going for them.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus