In times of geopolitical uncertainties, many investors are searching for investments with low volatility and higher yields.

Several news stories have noted that stock indexes recently had low volatility. On October 18 the 20-trading-day historic volatility for the S&P 500 (SPX) Index dropped to 3.4, its lowest level since 1969 (source: Bloomberg). There now is concern that with higher price-earnings ratios, the volatility of stock indexes could spike in coming months.

EVEN LOWER HISTORIC VOLATILITY FOR KEY OPTIONS-BASED BENCHMARK INDEXES IN 2017

So far in 2017, the daily averages for the 20-trading-day historic volatilities have been around 6.9 for the SPX and 3.2 for the Cboe S&P 500 PutWrite Index (PUT). On October 18, 2017, the 20-trading-day historic volatility of the PUT Index dropped to 0.8, its lowest level since mid-2014.  

1 - HV in 2017 PUT SPX

As shown in the chart below, in 2017 the 20-trading day historic volatility dropped below 1.7 in 2017 for 8 Cboe options-based indexes – CLLZ, BXMD, CMBO, CNDR, BXM, BXMW, WPUT, and PUT.

2 - HV for 15 indexes

VOLATILITY AND RETURNS OVER MORE THAN 3 DECADES

The next three charts below all provide analyses of benchmark indexes since mid-1986. In the first chart below, four of Cboe’s options-based indexes – PUT, BXM, BFLY and CMBO – all had lower volatility than the bond, stock and commodity indexes. 

3 - Stand dev since 1986

4- Annualized Returns since 1986

The Cboe BXMD Index writes out-of-the-money SPX options. As shown in the next two charts, the BXMD Index had higher returns than the S&P 500 and S&P GSCI indexes over a period of more than 31 years.

5 - Benchmarks since mid-1986

VIX-BASED BENCHMARK INDEXES SINCE 2006

In the next chart below, it is interesting to compare the contrasting performances in 2008 and in recent years of these two indexes - the Cboe VIX Premium Strategy Index (VPD) (a strategy that sells VIX futures), and the S&P 500 VIX Mid-term Futures Index (a strategy that buys VIX futures).

6 - Indexes since 2006

 

MORE ABOUT BENCHMARK INDEXES

To learn more about performance and volatility for benchmark indexes, please visit www.cboe.com/benchmarks and explore the information below.

Upcoming Cboe Risk Management Conferences include --

 

 

 The papers listed below are available at www.cboe.com/benchmarks -

  1. Aon HewittHarvesting the Equity Insurance Risk Premium: Know Your Options (December 2014)
  2. Asset Consulting GroupAn Analysis of Index Option Writing for Liquid Enhanced Risk-Adjusted Returns (January 2012)
  3. Asset Consulting GroupKey Tools for Hedging and Tail Risk Management (February 2012)
  4. BlackRockVIX Your Portfolio - Selling Volatility to Improve Performance (June 2013)
  5. Bondarenko, Oleg. An Analysis of Index Option Writing with Monthly and Weekly Rollover. (2016)
  6. Cambridge AssociatesHighlights from the Benefits of Selling Volatility (2011)
  7. Hewitt EnnisKnupp"The CBOE S&P 500 BuyWrite Index (BXM) - A Review of Performance" (2012)
  8. Ibbotson Associates. "Highlights from Case Study on BXM Buy-Write Options Strategy." (2004)
  9. Parametric Portfolio Associates"Volatility Risk Premium and Financial Distress" (August 2016)
  10. Wilshire. Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis (2016).