CBOE to Trade Options on ‘Dow Dogs’ in 1999
The Chicago Board Options Exchange will begin trading options on the so-called dogs of the Dow from the first session in 1999.
Investors often buy the Dow dogs--the 10 highest-yielding stocks in the Dow Jones industrial average--and hold them for a year, hoping to beat the average.
Buying the new option “is by far the most cost-effective way to invest using the dogs-of-the-Dow strategy,” said William Brodsky, CBOE chairman.
Yield is calculated by dividing a stock’s annual dividend by the share price. The highest-yielding stocks tend to be those most beaten down--hence the name Dow dogs.
The CBOE will trade “Options on the Dow 10,” an equal-weighted index of the 10 Dow dogs, starting Monday and will review the index annually for reshuffling. Options give the holder the right, but not the obligation, to buy or sell an index or security in lots of 100 at a predetermined price or time.
The Dow dogs theory hasn’t panned out in recent years. The dogs trailed the return for the 30-stock Dow average for the last five years. This year, the dogs have risen about 9%, compared with a 17% price gain for the index. Even including the dividend yield, the dogs are laggards.
This year’s dogs were AT&T;, Chevron, DuPont, Eastman Kodak, Exxon, General Motors, International Paper, J.P. Morgan, 3M and Philip Morris.
As of Wednesday, the new dogs are Caterpillar, Chevron, DuPont, Kodak, GM, Goodyear Tire & Rubber, International Paper, J.P. Morgan, 3M and Philip Morris. The highest-yielding of the pack: J.P. Morgan, with a 3.7% yield.
The options will trade under the ticker symbol MUT.