BXY and PUT Indexes Both Up More Than 500% Over the Past Two Decades

Recently I have heard some observers ask whether options strategies have performed well when compared with stock-based and commodity-based strategies. Various options investors can have different investment goals when using options; options can be used with the goals of hedging risk, adding income, implementing a position that reflects one’s future view on the markets, or enhancing risk-adjusted returns.

CBOE’s BENCHMARK INDEXES OVER 20 YEARS

As shown in the four charts below, two CBOE benchmark indexes, the CBOE S&P 500 2% OTM BuyWrite Index (BXY) and CBOE S&P 500 PutWrite Index (PUT), had relatively stronger returns and lower volatility over the past two decades when compared to four well-known benchmark indexes – the S&P 500, Russell 2000 Index, MSCI EAFE Index (for non-U.S. stocks) and S&P GSCI Index (for commodities). In the two decades ending May 31st, the BXY rose 512%, PUT rose 504%, S&P 500 was up 435%, and S&P GSCI rose only 92%. The PUT and BXY indexes also both had much less volatility than the other four indexes.

11BXY SP EAFE11PUT R GSCI11Bar chart BXY PUT EAFE etc

A couple other CBOE benchmark indexes also had relatively low standard deviations over the 20-year period – 11.1% for the CBOE S&P 500 BuyWrite Index (BXM) and 10.8% for the CBOE S&P 500 95-110 Collar Index (CLL). The annualized returns over the two decades were 8.0% for the CBOE S&P 500 BuyWrite Index (BXM) and a lower 5.9% for the CBOE S&P 500 95-110 Collar Index (CLL).  One of the reasons that the PUT and BXY (index option-selling) indexes had higher returns than the CLL  and other indexes above is the fact that implied volatility usually has been higher that realized volatility for S&P 500 options over the past two decades, and sellers of richly priced index options can be rewarded with relatively strong risk-adjusted returns.

WHITE PAPERS – INDEX OPTIONS AND STRONG RISK-ADJUSTED PERFORMANCE

If you would like to learn more about adding premium income, lowering portfolio volatility and enhancing risk-adjusted returns, please visit www.cboe.com/benchmarks to see more about CBOE’s benchmark indexes and to read the papers below.  Please note that stock indexes often outperform many options-based benchmark indexes in rising bull markets.

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Matt Moran

Matt Moran is vice president of business development for Chicago Board Options Exchange (CBOE), where he communicates with pension funds, mutual funds, and financial advisors. He has delivered more than 200 presentations worldwide on the topics of managing volatility and adding income with option-writing strategies. Previously,…

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