“Stealth Bull Market in Mega-Caps,” and Use of OEX and XEO Options

A CNBC news article earlier this month with the title “There’s a ‘Stealth Bull Market in Mega-Caps’: Pro” noted that –

… Many investment professionals are still making the case for sticking with quality, dividend paying large-cap stocks. “There’s a bull market going on. I call it a stealth bull market in mega-caps,” Bank of America Merrill Lynch’s Mary Ann Bartels told CNBC … noting the strength in the S&P 100. “One of the qualities (S&P 100 stocks) have is yield, but they also have quality and growth,” she said. … (link)

According to Bloomberg, the dividend yields for select U.S.-based stock indexes today are –

2.19% – S&P 100 (OEX)

1.59% – Russell 2000 (RUT)

1.08% – Nasdaq-100 (NDX)

A June 11, 2012 blog in Barron’s stated that –

… Bank of America Merrill Lynch’s Mary Ann Bartels says in a note this morning that mega-cap stocks like those in the S&P 100 and Russell Top 50 are “emerging as new leadership” for the market. She specifically argues that mega caps are breaking out of a two-year “base” relative to the S&P 500. “Stay big, stay quality, and stay yield within the mega caps as investors seek safety in uncertain times,” reads her note this morning. The theme is a familiar one: Investors often dump what they perceive as “risky” when markets get rough. They hold onto the biggest stocks, which are supposed to be safer. It has provided something of an edge this year: The $3.3 billion iShares S&P 100 Index Fund (OEF) is ahead by 6.6% year-to-date versus 5.5% for the SPDR S&P 500 ETF (SPY). … (link)

Year-to-date (through yesterday) the OEX has risen more than the S&P 500, DJX, and Russell 200 indexes.

Please note that past performance is not necessarily indicative of future returns.

 

OPTIONS FOR MANAGING EXPOSURE TO THE S&P 100 INDEX

CBOE now offers both OEX and XEO index options —

  • Since 1983 investors have used, cash-settled S&P 100 options (ticker symbol OEX, with American-style exercise) to adjust their equity portfolio exposure. More than one billion OEX options have been traded, making the OEX one of the most popular equity portfolio management tools in history.
  • In July 2001 the CBOE introduced cash-settled S&P 100 options (ticker symbol XEO) with European-style exercise. Some investors prefer this European-style feature, which means that XEO may be exercised only on the day just prior to expiration, and therefore XEO is not subject to the uncertainties involved with possible early exercise.

Bullish, bearish, and neutral investors can all use S&P 100 options to reflect their individual opinions of the S&P 100 market. You can trade index options for profit or protection, with opportunities to adjust for up, down or unchanging markets. The S&P 100 has established itself firmly as an active investment tool. This popularity stems from fundamental reasons for using the broad market-based S&P 100:

 

  • Simplicity Investors are able to trade a broad market by making one S&P 100 trading decision rather than making the many decisions involved with investing in numerous individual stocks.
  • Insurance S&P 100 options offer a convenient and easy way to reduce the market risk of a broad market portfolio, without disrupting the make-up of the portfolio.
  • Predetermined Risk S&P 100 option purchasers risk only the premium they pay for the option. The risk is both known and limited.

Please visit the website www.cboe.com/OEX for more information about ways that you can use options on the S&P 100 Index.