Managing Risk and Return with CLLZ and Zero-Cost Put Spread Collar – Blog #5 on 30-Year Price History

[This is the fifth in a series of nine blogs to be published in early July at the CBOE Options Hub on nine CBOE benchmark indexes which have price histories that begin on June 30, 1986.]

In recent years I have heard from some money managers that the put-spread collar strategy is becoming more popular, and in 2015 CBOE introduced the CBOE S&P 500 Zero-Cost Put Spread Collar Index (CLLZ). The CLLZ Index now has more than 30 years of price history.

FEWER BIG DOWNSIDE MOVES FOR CLLZ

The histogram with the S&P 500 and CLLZ indexes shows that the S&P 500 had 26 months with declines of worse than six percent, while the CLLZ Index had 12 such months. Certain index options strategies can be used to help manage left tail risk.

5-CLLZ-01-Histo

The table below shows that, for the five months in which the S&P 500 Index dropped by more than 10%, the CLLZ Index experienced drops that were not as severe as those of the S&P 500.

5-CLLZ-02-Big

STANDARD DEVIATIONS AND RETURNS

The CLLZ had a lower standard deviation than the other four indexes in the next chart below. Certain options strategies can help less portfolio volatility.

5-CLLZ-03-St Devia

 

In addition, the CLLZ had higher returns than 3 of the 4 indexes in the Annualized Returns chart.

5-CLLZ-04-Annu Returns

 

 

INDEX DESCRIPTION AND P&L DIAGRAM FOR STRATEGY

The CBOE S&P 500 Zero-Cost Put Spread Collar Index (CLLZ) tracks the performance of a hypothetical option trading strategy that 1) holds a long position indexed to the S&P 500 Index; 2) on a monthly basis buys a 2.5% – 5% S&P 500 Index (SPX) put option spread; and 3) sells a monthly out-of-the-money (OTM) SPX call option to cover the cost of the put spread.

The profit-and-loss diagram below shows the approximate profit-and-loss for a long stock position (in gray color) and for a put-spread collar position (in blue color).

5-CLLZ-06-P&L

MORE INFORMATION

The microsite for the CLLZ Index is at www.cboe.com/CLLZ.

For more information on dozens of CBOE benchmark indexes, please visit www.cboe.com/benchmarks for research papers and price charts.

If you would like to hear expert speakers discuss options and volatility, please visit www.cboermc.com to learn more about these upcoming CBOE Risk Management Conferences —

  • RMC EUROPE 2016, Sept. 26 – 28, 2016, Powerscourt Hotel, County Wicklow, Ireland
  • RMC ASIA 2016, Nov 30 – Dec 1, 2016, Conrad Hong Kong Admiralty, Hong Kong
  • RMC US 2017, March 8 – 10, 2017, St. Regis Monarch Beach, Dana Point, California

(The author thanks Paige Stodden for her assistance in creating charts for this Blog).