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 …”

In 2015 CBOE introduced the CBOE S&P 500 Covered Combo Index (CMBO), a benchmark index that sells S&P 500® (SPX) put options and call options, and that now has more than 3 decades of price history.

The chart below shows that over the past three decades the CMBO Index had less volatility than the 30-Year Treasury Bond Index and three other major indexes.

6-CMBO-01-St Devia

The Annualized Returns chart shows that the CMBO Index had returns that higher than 3 of the other 4 indexes.

6-CMBO-02-Annu Returns

In answer to the question of how the CMBO Index had relatively strong returns and low volatility, the volatility risk premium may help explain some of the strong risk-adjusted performance. The paper Highlights from the Benefits of Selling Volatility – also noted that --

“ … investors should take a serious look at the benefits of a fully collateralized option-selling program designed to capture the historical spread between implied volatility (e.g., the VIX) and realized volatility. There has been a persistent historical premium for implied volatility relative to realized volatility. …”

6-CMBO-03-Line Chart


The table below shows that, for the 5 months in which the S&P 500 Index dropped by more than 10%, the CMBO Index experienced drops that were not as severe as those of the S&P 500.




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



The CBOE S&P 500 Covered Combo Index is designed to track the performance of a hypothetical "short strangle" strategy collateralized by a portfolio holding a long position indexed to the S&P 500 Index and a money market account invested in one-month Treasury bills. The CMBO Index sells a monthly at-the-money (ATM) S&P 500 Index (SPX) put option and a monthly 2% out-of-the-money (OTM) SPX call option. The short SPX put position is collateralized by a money market account invested in one-month Treasury bills and the 2% OTM SPX call is collateralized by the long SPX Index position. The CMBO Index rolls on a monthly basis, typically every third Friday of the month.



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

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).