Nikkei Stock Average Strategy Index Series

Nikkei 225 Covered Call Index
Index Guidebook

Nikkei Inc.

・ This document is the index guidebook of the Nikkei 225 Covered Call Index
calculated and published by Nikkei Inc. (Nikkei) since June 2011. The document isdrawn up by Nikkei and it would be changed or modified corresponding to therevision of the index calculation rule etc.
・ Copyright of this document is owned by Nikkei, and any copies, reprints andreproduction of this document are prohibited without the prior approval of Nikkei.
This document is prepared solely for the understanding of the index Nikkei
calculates and publishes, and it is not to be construed as a solicitation or an offer tobuy or sell any securities or related financial instruments.
・T h i s E n g l i s h d o c u m e n t i s a t r a n s l a t i o n o f t h e o r i g i n a l d o c u m e n t d a t e d M a r c h 2 4 , 2 0 1 4in Japanese and may not be an entirely accurate translation of the original Japanese
document. In any case where differences arise between the English version and theoriginal Japanese version, the original Japanese document will prevail.

(March 24, 2014 version)

GB-CC0-20140324

Nikkei 225 Covered Call Index
1 : Concept“Covered Call strategy (Buy-write strategy)” is one of the major invest ment
methods using options. Under this strategy, an investor holds a long position ofthe underlying asset and sells its call option concurrently.

This strategy is taken

when the investor expects the price of the underlying asset not to fluctuate
widely in the short-term. Wh ile this strategy could decrease the downside risk
due to the premium by selling the call option, the profit woul d be limited whenthe asset price rises more than the investor expected.
The Nikkei 225 Covered Call Index is designed to indicate the performance of“Covered Call strategy” to hold a long position of the Nikkei Stock Average(Nikkei 225) as the underlying asset and to sell the near-term call option of theNikkei 225 listed on the Osaka Exchange (OSE). Option position will be “rolled”
every mo nth. The call option would be settled (i.e. purchased back) on the next
trading day after the last trading day (i.e. SQ Date) of the option and the newlynear-term call option with the strike price of 5% higher than the Nikkei 225
would be sold.
2 : Index Calculation(1) Basic Points
・ Index value on a day is calculated by multiplying the index value on theprevious day by the change rate on the day based on the prices of the Nikkei 225
and the near-term call option on the Nikkei 225.
・ The special quotations (SQ) and the prices of the options on the day and theprevious day, published by the OSE on the morning session (including theevening session on the previous business day) and the afternoon session are usedfor the calculation.
・ Unit of the index value is “points” and the figure is rounded to two decimalplaces.
・ Index value on December 28, 2001 was 10,000 points.
・ Index is calculated and published as the value on the end-of-day basis.
(2) Selection of the targeted call option
・ Use the near-term option to calculate the index.
・ The option used to calculate the index is rolled to the next delivery month on
the “SQ date”, the day when the SQ value is published by the OSE (on the next
trading day after the last trading day of the option).

Copyright 2014 Nikkei Inc. All rights reserved.

2

・The strike price of the targeted call option is the minimum strike price above 5%
out-of-the-money (OTM), that is, the mini mum in the strike prices which are
greater than the value multiplied 1.05 by the Nikkei 225 closing price on the day
before the SQ date.
(3) Formu la*In the following for mula, “Nikkei 225” indicates its closing price.
① On each trading day excluding the roll dateI n d e x Va l u e ( c u r r e n t d a y ) ＝ I n d e x Va l u e ( p r e v i o u s d a y ) ×
Nikkei 225 (current day)－ Call option price (current day)
Nikkei 225 (previous day)－ Call option price (previous day)② Roll date (SQ date)Index Value (current day) ＝ Index Value (previous day)

WhereRa ＝×

Ra × Rb

SQ(*1)－ Final settlement price of targeted call option(*2)
Nikkei 225 (previous day)－ Call option price (previous day)

Nikkei 225 (current day)

Rb ＝SQ*1: SQ value for the call option with (former) near-term delivery month.
*2: Final settlement price determined by strike price of the targeted call option and the SQ value.

(4) Call option price・ Priority in the usage of prices are as follows:① Closing price (Last traded price)② Mid price of the valid Bid price and Ask price at the closing③ Settlement price3 : Calculation Example(in case of February 9 and 10, 2011)(1)Calculation on Feb 9, 2011 (On each trading day excluding roll date)*In the following example, “current day” is Feb 9, 2011 and, “previous day” isFeb 8, 2011.
・ Nikkei 225 Covered Call Index (previous day)＝ 10623.09
・ Nikkei 225 (previous day)＝ 10635.98
・ Call option price (previous day)(*3)＝ 1
・ Nikkei 225 (current day)＝ 10617.83
Copyright 2014 Nikkei Inc. All rights reserved.

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・ Call option price (current day)(*3)＝ 1
Nikkei 225 Covered Call Index (current day)＝10623.09×{(10617.83－1)÷(10635.98－1)}＝10604.96029…  10604.96* 3 : Ta r g e t e d C a l l o p t i o n w i t h t h e s t r i k e p r i c e o f 11 2 5 0 a n d F e b r u a r y 2 0 11 d e l i v e r y m o n t h .

(2)Calculation on Feb 10, 2011 (Roll date)・ Nikkei 225 Covered Call Index (previous day)＝ 10604.96
・ Nikkei 225 (previous day)＝ 10617.83
・ Call option price (previous day) (*3)＝ 1
・ SQ value of the call option with Feb 2011 delivery month＝ 10561.41
・ Final settlement price of targeted call option(*4)＝ 0・ Nikkei 225 (current day)＝ 10605.65
Nikkei 225 Covered Call Index (current day)
＝ 10604.96×{(10561.41－ 0)÷(10617.83－ 1)}×(10605.65÷10561.41)＝ 10593.79249…  10593.79
Newly targeted option was the call option with the strike price of 11250 andMarch 2011 delivery month. This is because the minimum strike price above 5%
OTM was 11250, the mini mum in the strike prices that are greater than the value(=11148.7215) multiplied 1.05 by the Nikkei 225 closing price (=10617.83) onFeb 9, the last trading day of Feb 2011 delivery month option.
*4: The final settlement price was 0 because the strike price of the targeted call option was greatert h a n t h e S Q v a l u e o f c a l l o p t i o n s w i t h F e b 2 0 11 d e l i v e r y m o n t h .

4 : Treatment of the index value(1)Retroactive calculation in the past
Nikkei 225 Covered Call Index was calculated retroactively on the end-of-daybasis; to December 28th 2001, base date of the index (= 10,000 points). The strikeprice of call option with Jan 2002 delivery month used to calculate the index on
the base date was deter mined based on the value which was multiplied 1.05 by theNikkei 225 closing price on Dec 13, 2001 (the last trading day of the call option
with Dec 2001 delivery month).
(2)Modification of the index value
If any event which affects the index value occurs, as a general rule, retroactive
calculation for the modification will not be conducted. However if the Nikkei

Copyright 2014 Nikkei Inc. All rights reserved.

4Stock Average (Nikkei 225) used to calculate the Nikkei 225 Covered Call Index
is modified retroactively, this index may also be modified retroactively.
5 : Others(1) Licensing
Nikkei 225 Covered Call Index is the intellectual properties which belong toNikkei. All of the rights to the index such as right to calculate, publicize,disseminate and use these indices are reserved by Nikkei. Licensing agreementwith Nikkei is necessary if companies intend to create Index – linked funds andpassive funds, etc. It is also required to use this index for disseminating,providing and showing, etc. to the third party in the way as Nikkei decides.
(2) Risk
Nikkei calculates and publishes the Nikkei 225 Covered Call Index in accordancewith the methods described in this document. In the event of circumstance notdescribed in this document or Nikkei determines it is impossible to use themethods described in this document, Nikkei may use an alternative method of theindex calculation as it dee ms valid.
In case of a breakdown of computer system, natural disasters or any otherunavoidable situations, Nikkei may postpone or cancel the calculation of theindices. Nikkei, under any circumstance, does not guarantee the accuracy of theseindices. Should any error in the calculation of the indices take place, Nikkei shallnot be liable for any damages sustained by any person or organization.
This document could be changed corresponding to the revision of the index
calculation rule etc in the future. Information expressed in this documen t is
subject to change without notice and in those cases Nikkei is under no obligation
to update any recipients of this document. Nikkei shall not accept any liability forany loss or damage arising from the usage of all or any part of this document.
In addition, the disclaimers in the above are also applied to Nikkei Stock
Average (Nikkei 225) which is used to calculate the Nikkei 225 Covered Call
Index.
Contact
Inquires on Nikkei 225 Covered Call Index
Index Business Office, Nikkei Inc.
Tel:+813-6256-7341, mail:index@nex.nikkei.co.jp

Copyright 2014 Nikkei Inc. All rights reserved.

5Appendix : Change hist ory of Index GuidebookMay 30, 2011 version

Initial Version

March 24, 2014 version

In “1:Concept”-modifiedtheexchange

nameto“OsakaExchange” due to the trade name change.

Copyright 2014 Nikkei Inc. All rights reserved.

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