Earlier this month CBOE and CAIA Association teamed up to present a panel discussion in New York City on Accessing the Volatility Risk Premium with Cash-Secured Put Writing. I was pleased to see great feedback on the event.



The panel discussion featured four speakers who are shown (left to right) in the above picture --

Derek Devens, Managing Director, Neuberger Berman

  • Robert Specht, Portfolio Manager, Additive Advisory and Capital
  • Tripp Zimmerman, CFA, Associate Director of Research, WisdomTree Asset Management
  • Dr. Keith Black, CAIA, CFA, Managing Director, Curriculum and Exams, CAIA Association

I served as moderator for the panel discussion, and the audience had good questions and comments.


The panel addressed a number of topics and issues, including following.

There was agreement that implied volatility generally has been higher than realized volatility for key index options, and that sellers of index options look at the volatility risk premium.


It was noted that although many people have asked why the VIX Index has been lower than its long-term average in 2017, the histroic volatility for the SPX generally has been even lower than the VIX Index in 2017. Writers of index options often like to see a volatility risk premium.


A study by Wilshire Associates of three decades of performance showed that option-writing indexes (PUT, BXMD and BXM) all had higher returns than an option-buying index (PPUT), and the volatility risk premium could have had an impact on relative returns.


A study by Professor Oleg Bondareko found that the WPUT Index (which writes 52 times a year) generated more aggregate gross premiums per year than the PUT Index (which writes 12 times a year). The panelists discussed transaction costs. 


While some people ask if put-writing strategies have potential for huge drawdowns, the cash-secured feature of the PUT and WPUT indexes can help mitigate drawdowns.  A
study by Professor Oleg Bondareko found that the maximum drawdowns were 24.2% for the WPUT Index, 32.7% for the PUT Index, and 50.9% for the S&P 500 Index.


Dr. Keith Black commented on his paper that found that the number of ’40 Act funds (including mutual funds, closed-end funds, and ETFs) that used options grew from 10 funds in 2000 to 119 funds in 2014.



For more information on white papers on use of options and on CBOE’s benchmark indexes, please visit www.cboe.com/benchmarks.