The opening presentation at the 3rd Annual Cboe RMC Asia matched Matt Moran up with Russell Rhoads (me) for a discussion covering Option Strategies and Option Strategy Benchmarks.  Matt and I both work in the Product Advancement area with Matt holding the title of Vice President and my title being Director. 

I began things with a discussion of how different strategies are implemented.  This included an example of a cash secured put that replicated the transaction that would be dictated by the rules that govern the Cboe S&P 500 PutWrite Index (PUT) on the October roll date. 

Matt followed up with a comprehensive look at the performance of varous Cboe Benchmark Indexes.  He covered a lot of ground in a short period of time, addressing eleven common questions he receives regarding our proprietary markets and benchmark indexes.  For the me the highlights came down to his drawdowns have been for put writing indexes. 

We are all very aware that VIX has been low in 2017, as I type this the average close for VIX this year has been around 11.16.   Barring an average of just over 32 over the remaining trading days in 2017, this year will go down as the lowest average VIX on record.  So how have option sellers done in 2017?  Pretty good as although the implied volatility of index options has been very low, the subsequent realized volatility has been even lower.  The chart below shows VIX closing prices for the first 10 months of 2017 and the subsequent realized volatility over the next 21 trading days for the S&P 500.  VIX is a forward looking 30-day measure, but that is for calendar days, the most common number of trading days over a 30 calendar day period is 21 days, hence the adjustment. 

VIX vs Realized

Note that for every observation in 2017 VIX has been higher than the resulting volatility.  This has shown up in solid positive performance for option writing strategies this year as well.  The brief version is that selling options when volatility is low works, especially when realized volatility is low as well.

Matt used the chart below to compare monthly drawdowns for PUT, WPUT, and the S&P 500 from 2006 through 2015.  The chart is taken directly from a paper by Professor Oleg Bondarenko from the University of Illinois – Chicago titled An Analysis of Index Option Writing with Monthly and Weekly Rollover.  This paper can be found on the Cboe website along with several other papers at

Matt PUT Drawdown Graphic

Note the drawdowns for PUT on the chart above is 32.7%, WPUT 24.2%, and over 50% for the S&P 500.  All three experienced this negative performance during the great financial crisis, but the lowest point of performance for WPUT came in 2008.  Also, when the S&P 500 was making a final push to the downside in March 2009, the drawdown for PUT did not follow through as much as SPX. 

Matt and I teamed up to kick things off at Cboe RMC in Hong Kong and several presentations built on our introduction to and overview of Cboe Option Strategy Benchmarks.  I’ll cover those presentations over the next few days in this space.   

Useful links –

RMC Home page –

Benchmark Index Information –