New Study – Funds That Use Options (Part 3 on Related Benchmarks & SPX Options)

A groundbreaking new study — “Highlights of Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs” authored by Keith Black and Edward Szado — analyzed SEC-regulated investment companies that focus on use of exchange-listed options for portfolio management (options-based funds). This is my Part 3 Blog on the study.

The first part of the study presented an analysis of Options-Based Funds over the past 15 years, while the second part focused on the performance of options-based benchmark indexes since mid-1988.

BENCHMARK INDEXES SINCE MID-1988. The study found that the CBOE S&P 500 PutWrite Index (PUT) and the CBOE S&P 500 2% OTM BuyWrite Index (BXY) both produced higher returns and lower volatility than the S&P 500 and S&P GSCI indexes during the period from mid-1988 through the end of 2014.  A key source of strong risk-adjusted returns for select index-option-writing strategies has been the fact that index options usually have been richly priced. 3 007-CumulativeGr-BXY

3 008-AnnualizedRet-BXY

3 009-StandDevia-PUT


INDEX OPTION PREMIUMS. A chart in the study shows the average gross monthly premiums for the BXM Index. Please note that while these gross amounts are positive values, a buy-write strategy can have negative net returns if the value of the stocks held declines.

3 010-Premium-BXM

GROWTH IN NOTIONAL VALUE. Institutional investors often inquire about the notional capacity of markets in financial instruments. The estimates for notional value of average daily volume in SPX options rose from $13 billion in 2000 to more than $170 billion in 2014. Some investors do use a delta-weighting adjustment to develop a more conservative estimate of notional value of options trading, and the bid-offer spreads for many instruments can widen in time of high anxiety. 3 011-Notional-SPX

Upcoming RMC Conference. The Black / Szado study will be included in one of the many presentations at the 31st annual CBOE Risk Management Conference (RMC) on March 4 – 6, 2015, at the Park Hyatt Aviara in Carlsbad, CA.

MORE INFORMATION. For more information on the new study, and testimonials and videos by fund managers, please visit