Investors recently have shown increased interest in protection from large peak-to-trough drawdowns in their portfolios. 

In the 27 years from 1990 through 2016, the average value of the CBOE SKEW Index (SKEW) was 118.4, but in the 20 recent trading days since January 13, the SKEW Index averaged 134.5, and ranged between a low of 128.80 and a high of 146.33. A high SKEW Index value could be indicative of high demand for S&P 500® (SPX) protective put options.

In the Feb. 11 Striking Price column in Barron’s, Steve Sears wrote –

“AT VARIOUS TIMES, extreme market conditions inspire investors to ask about resources that will help them better understand options. So many of these emails have arrived recently, perhaps because of the stock market’s high level or the historically low level of options premiums …”


For risk-averse investors who wish to avoid large losses in their portfolios, charts showing peak-to-trough drawdowns may provide valuable insights in their comparisons of various investment strategies.

Exhibit 10 of the 2016 paper by Professor Oleg Bondarenko – “An Analysis of Index Option Writing with Monthly and Weekly Rollover” – provides diagrams showing the drawdowns over a period of 10 years for 3 indexes – the CBOE S&P 500 PutWrite Index (PUT), the CBOE S&P 500 One-Week PutWrite Index (WPUT) and the S&P 500 Index. The least severe worst drawdown was down 24.2% for the WPUT Index.

The next three bar charts all show drawdowns over the 16-month period of the financial crisis from October 31, 2007 through February 27, 2009.

During the 16-month period, several indexes that do not use options had big drawdowns including down 50.9% for the S&P 500 Index, down 53.4% for the S&P GSCI Index (commodities-based), and down 61.6% for the MSCI Emerging Markets Index (in US$).

In comparison, during the 16-month period all of the options-based indexes on these charts had percentage changes that were not as severely down –

  • the CBOE S&P 500 PutWrite Index (PUT) fell 31.6%,
  • the CBOE S&P 500 Risk Reversal Index (RXM) fell 24.5%,
  • the CBOE S&P 500 Iron Butterfly Index (BFLY) fell 5.1%, and
  • the CBOE S&P 500 Iron Condor Index (CNDR) rose 1.6%.

In addition, during the 16-month time period, the Russell 2000® Index fell 52%, and 3 CBOE benchmark indexes that use Russell 2000 (RUT) options (PUTR, BXR, and BXRD) all had drawdowns that were less severe than that of the Russell 2000 stock index.


For more information on portfolio protection and mitigation of drawdowns, please visit webpages and, and see hashtag #HedgeDrawdown on Twitter.