At the 33rd Annual CBOE Risk Management Conference in California last week, several speakers discussed ways to use sentiment analysis and the volatility risk premium in their quest to add alpha and enhance the risk-adjusted returns of their portfolios.
I am pleased to report that two upcoming events will provide more details and analysis of the topics of developing investable and actionable intelligence from analysis of sentiment trends on social media, and generating attractive risk-adjusted returns[...]
More than fifteen CBOE strategy benchmark indexes (including BXD, BXM, BXMC, BXMD, BXMW, BXR, BXRC, BXRD, BXY, CLL, CLLR, CLLZ, CMBO, PUT, PUTR, RXM, VPD, VPN, and WPUT) hit all-time daily closing highs on December 20.
As shown in the first graph and table below, the CBOE Russell 2000 30-Delta BuyWrite Index (BXRD) rose 9% since the November 8 U.S. election (through December 20).
The relatively strong performance of the BXRD Index over the past five weeks possibly could be attributed[...]
Here are some highlights from recent news stories on the bond markets –
A Wall Street Journal story had the headline “Government Bond Rout Deepens on Trump’s Economic Plans,”
A Barron’s story noted that Jeffrey Gundlach, CEO of DoubleLine Capital, sees “a rise in bond yields that could lift the yield on the 10-year Treasury note to 6% in the next four or five years.”
A New York Times story stated that “From Indonesia to the United States, government[...]
The following headlines appeared in the trade publications Pension & Investments….
“Hawaii assigns $1.6 billion total to 4 managers for options-based strategies” (March 21, 2016)
“South Carolina allocates nearly $1.9 billion to equity options, infrastructure strategies” (April 21, 2016)
The rationale for Hawaii and South Carolina’s interest in using options strategies to mitigate risk and enhance yields was outlined in the recent article in The Wall St. Journal…
An October 3 news story - “Funds go exotic with put-write options to stem volatility” - in Pensions & Investments noted that put-write options strategies “are finding their way into more pension fund allocations to protect against volatility and, in some cases, take the place of fixed income as an income provider.”
The news story noted that a new paper by Wilshire -- Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis[...]
Wilshire Associates recently was ranked as one of the world’s ten largest investment consultants due to the fact that it had more than $1 trillion in worldwide institutional assets under advisement, according to the survey published in the Nov. 30, 2015 issue of Pensions & Investments.
A new study - “Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis” – was released this week. The study was commissioned by CBOE and authored[...]
The CBOE S&P500 95-100 Collar Index (CLL) invests in short S&P 500® (SPX) calls, long SPX puts and long stocks in order to gather premium income and manage downside risk.
The histogram with the S&P 500 and CLL indexes shows that the S&P 500 had 13 months with declines of worse than 8 percent, while the CLL Index had only 1 such month. Certain index options strategies can be used to help manage left tail risk.
The SPX puts at 95 moneyness did help mitigate the downside[...]
CBOE S&P 500 Iron Condor (CNDR) has a data history of more than 30 years, and it engages in call and put options positions in order to gather premium income and manage downside risk.
The histogram with the S&P 500 and CNDR indexes shows that the S&P 500 had 26 months with declines of worse than six percent, while the CNDR Index had 10 such months. Certain index options strategies can be used to help manage left tail risk.
The CNDR Index tracks the performance of a hypothetical option[...]
On April 29, 2016, Morningstar added a new Option Writing category to its U.S Retail Category system, and the Category Index is the CBOE S&P 500 BuyWrite Index (BXM).
In the May 7, 2016, Striking Price column in Barron’s, Steve Sears wrote --
"...THE OPTIONS INDUSTRY has taken a major step onto Main Street. Morningstar, which millions of individuals rely upon to evaluate mutual funds, has created a category for options-trading funds. The significance of this can’t be overstated.[...]
A 2011 paper by the consulting firm Cambridge Associates - Highlights from the Benefits of Selling Volatility – noted that --
“Over the past 20 years, a strategy of systematically selling out of the money puts and calls on the S&P 500 Index (a short strangle portfolio) would not only have soundly beaten equity returns with lower volatility, but also offered similar returns to the median hedge fund manager tracked by Cambridge Associates, albeit with slightly higher volatility …”
[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
[This is the fourth in a series of nine blogs that are being published in early July at the CBOE Options Hub on nine CBOE benchmark indexes which have price histories that begin on June 30, 1986, more than three decades ago.]
Over the past thirty-year time period (ending June 30) the CBOE S&P 500 30-Delta BuyWrite Index (BXMD) rose 1955%, with higher returns and lower volatility than the S&P 500®, MSCI EAFE®, and S&P GSCI indexes.
Note in the line chart below that the BXMD index[...]
A recent piece in the Wall Street Journal noted that –
“The yield on the benchmark 10-year U.S. Treasury note fell to its lowest level ever Tuesday, a new milestone in a three-decade downward run that even veteran traders never thought would go so far or last so long. The yield closed below 1.4% for the first time … according to data going back to 1977. The question now is how low can they go. Investors buying Treasurys now are taking big risks, as prices of longer-term debt can[...]
[This is the third 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, more than three decades ago.]
When a novice investor asks me to describe an options strategy, I often use an insurance analogy – millions of people buy insurance policies and pay premiums to insure their autos and homes against disasters, and equity options investors pay premiums to mitigate downside equity[...]
This is the second 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, three decades ago.]
Over the past three decades the CBOE S&P 500 Iron Butterfly Index (BFLY) demonstrated the ability to help manage drawdowns and left tail risk.
The BFLY Index is designed to track the performance of a hypothetical option trading strategy that 1) sells a rolling monthly at-the-money (ATM) S&P[...]