More Tools for Managing Global Exposure – Added Expirations for Options on MSCI Indexes

Today CBOE added three new expirations for options on both the MSCI Emerging Markets Index (MXEF) and on the MSCI EAFE Index (MXEA). There now are six expiration dates for options on the MXEF and MXEA indexes –

  • Nov-20-2015
  • Dec-18-2015
  • Jan-15-2016
  • Mar-18-2016
  • Jun-17-2016
  • Sep-16-2016


Below are two charts with daily closing values for index prices and the 30-day at-the-money (ATM) implied volatility estimates from Bloomberg. This month, the estimated ATM implied volatility for MXEF options rose from 17.3 on Nov. 2 to 28.6 on Nov. 16. The peak values for implied volatility estimates since April were 36.5 for MXEF and 26.9 for MXEA. image001image002


Key features of MXEF options include:

  1. Large Notional Size — around $82,800 per contract with the MXEF index at 828 (approximately 24 times that of options on the EEM ETF)
  2. No Early Exercise of MXEA Options – European-style Exercise
  3. Cash-settlement with No Delivery of Stocks or ETFs
  4. Price and Quote Transparency with Competitive Auction Markets for Leading Option Contracts
  5. Daily Mark-to-market for SEC-regulated securities
  6. Clearance of Transactions is guaranteed by the Options Clearing Corporation
  7. Tax Treatment under section 1256 of the Tax Code. Profit and loss on transactions in certain exchange-traded options, including MXEF options, may be entitled to be taxed at a rate equal to 60% long-term and 40% short-term capital gain or loss, provided that the investor involved and the strategy employed satisfy the criteria of the U.S. Tax Code.


While the MXEF and MXEA options were launched this year, one could ask the question as to whether these is evidence to suggest that backtests of options strategies using EEM options have delivered any intriguing results. I recently reviewed a new Livevol Backtester tool that calculates and compares past pre-tax returns for ETFs vs. estimates for covered calls or cash-secured puts. (The Backtester tool is not yet available to the general public, but there are plans to make the available in Livevol Pro and Livevol X in the near future).

  • Below are a couple of 8-year EEM backtest charts from Livevol that show better performance for a couple of covered call strategies.
  • HIGHER RETURNS. Both the EEM covered call strategies (A-T-M & O-T-M) had positive returns of more than 17.9%, while the EEM ETF lost 19%.
  • LESS COSTLY DRAWDOWNS. The maximum drawdowns were: down 41.3% for A-T-M covered call, down 52.4% for O-T-M covered call, and down 62.1% for EEM ETF. This provides evidence to suggest that covered call strategies do have the potential to lessen (but not eliminate) left tail risk, because the covered call is receiving options premium that can provide a cushion in the event of a market downturn. Please note that these are estimated pre-tax returns, and that past performance is not a predictor of future returns. image003image005(1)

The O-T-M strategy below had higher returns and a worse drawdown when compared with the A-T-M strategy above.


To learn more about options the MSCI Emerging Markets Index (MXEF) on the MSCI EAFE Index (MXEA), please visit