Earlier this week –
> the BXM, BXY and PUT indexes all reached record high daily closing values, and
> a new study on the BXM Index was released by Hewitt EnnisKnupp, a large consulting firm.
EXTENT OF RECOVERY FOR INDEXES SINCE OCTOBER 2007 PEAK
The S&P 500 Index reached its all-time high daily closing value on October 9, 2007, and then fell by more than 50% over subsequent months.
It is interesting to note that these three options-based indexes recently hit all-time highs —
- BXM – CBOE S&P 500 BuyWrite Index
- PUT – CBOE S&P 500 PutWrite Index
- BXY – CBOE S&P 500 2% OTM BuyWrite Index
but that some stock indexes in 2012 still have not surpassed the levels they reached on October 9, 2007.
The table below shows percentage changes in daily closing values for select indexes from October 9, 2007 to March 22, 2012.
This week a new paper was released – “The CBOE S&P 500 BuyWrite Index (BXM) – A Review of Performance” by Hewitt EnnisKnupp.
Press Release (March 20, 2012) http://bit.ly/BXM-Hewitt-PRelease
The new paper found that (from June 1986 through January 2012), the BXM produced a —
• Similar return but lower volatility relative to the S&P 500 Index
• Return in excess of all other comparative indices
• Standard deviation lower than all other equity and commodity indices
• Standard deviation lower than the 30-Year Treasury Index
• Sharpe ratio that was superior to that of other equity and commodity indices evaluated
The paper includes several Exhibits, including the following:
OTHER PAPERS ON SELLING OF INDEX OPTIONS
- Asset Consulting Group. An Analysis of Index Option Writing for Liquid Enhanced Risk-Adjusted Returns (January 2012).
Press Release http://bit.ly/ACG-OpWr-PRelease
- Cambridge Associates. Highlights from the Benefits of Selling Volatility (2011).
- Russell Investments. Capturing the Volatility Premium through Call Overwriting. (December 2010)
- Fund Evaluation Group. “Evaluation of BuyWrite and Volatility Indexes: Using the CBOE DJIA BuyWrite Index (BXD) and the CBOE DJIA Volatility Index (VXD) for Asset Allocation and Diversification Purposes.” (2007).
- Callan Associates.“An Historical Evaluation of the CBOE S&P 500 BuyWrite Index Strategy.” (October 2006).
- Ibbotson Associates.“Highlights from Case Study on BXM Buy-Write Options Strategy.” (2004).
Hewitt EnnisKnupp, Inc., an Aon company, provides investment consulting services to over 460 clients in North America with total client assets of over $2 trilli