BXY and PUT Indexes – Lower Standard Deviation and Higher Return Over the 26.5 Years

On Wednesday at the 31st Annual CBOE Risk Management Conference, a presentation on a new study was delivered by Keith Black, Ph.D., CAIA, CFA, Managing Director, Curriculum and Exams, Chartered Alternative Investment Analyst (CAIA) Association.  (Edward Szado, Assistant Professor of Finance, Providence College was scheduled to appear with Dr. Black but was delayed by bad weather).

Early this year Dr. Black and Dr. Szado published their new groundbreaking study – Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs. The study analyzed SEC-regulated investment companies (mutual funds, exchange traded funds (ETFs) and closed-end funds (CEFs)) that focus on use of exchange-listed options for portfolio management (options-based funds).

The study also analyzed the performance from mid-1988 through the end of 2014 for some “traditional” benchmark indexes, as well as for options-based benchmark indexes, such as the CBOE S&P 500 PutWrite Index (PUT) and the CBOE S&P 500 2% OTM BuyWrite Index (BXY), that use S&P 500® Index (SPX) options.  During that time period, both the PUT and BXY Indexes produced higher returns and lower volatility than the S&P 500 and S&P GSCI Indexes.  SPX options, which usually have been richly priced, were a key component in the higher risk-adjusted returns generated by PUT and BXY indexes (that sell SPX options every month).

Key findings of the study include:

LOWER VOLATILITY. The BXY and PUT indexes had lower volatility the S&P 500, Treasury bond and S&P GSCI Indexes.

2015-04-03-1445-Black Szad BXY PUT Stan Devia

HIGHER RETURNS. The BXY and PUT indexes had higher returns than 5 benchmarks for “traditional” investments.

2015-04-03-1445-Black Szad BXY PUT Ann Returns

For more information about options-based benchmark indexes and related white papers with analyses, please visit www.cboe.com/benchmarks.