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 500 Index (SPX) put and call option; 2) buys a rolling monthly 5% out-of-the-money (OTM) SPX put and call option to reduce risk; and 3) holds a money market account invested in one-month Treasury bills, which is rebalanced on the option roll day and is designed to limit the downside return of the index. The BFLY Index rolls on a monthly basis, typically every third Friday of the month. 


The rolling monthly 5% out-of-the-money (OTM) SPX put options help the BFLY Index mitigate downside risk. Here is the profit-and-loss diagram for an Iron Butterfly strategy.


The histogram with the S&P 500 and BFLY indexes shows that the S&P 500 had 26 months with declines of worse than six percent, while the BFLY Index had only 2 such months. Certain index options strategies can be used to help manage left tail risk.


Note in the table below that four of the five indexes had months with losses of worse than 20%, while the worst loss for the BFLY Index in the table below was down only 5.6%.


Over 30 years the BFLY Index had less volatility than four “traditional” indexes, including the Citigroup Treasury Bond Index.

2-BFLY-04-St Devia







While it appears from the charts above that the BFLY Index could have potential to serve as a diversifier for a portfolio, investors also should note the annualized returns for the BFLY have not been as strong as those of some traditional indexes.



The 2016 paper by Black and Szado stated that the worst drawdowns since mid-1986 were --

  • -79.4%                        S&P GSCI
  • -56.7%                        MSCI EAFE (US$)
  • -50.9%                        S&P 500
  • -33.7%                     CBOE S&P 500 Iron Butterfly Index (BFLY) 

Investors often are wary of investments that have had big drawdowns.


The microsite for the BFLY Index is at

For more information on dozens of CBOE benchmark indexes and important disclosures, please visit for research papers and price charts.

If you would like to hear expert speakers discuss options and volatility, please visit 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).