In September 2008 CBOE launched the CBOE S&P 500 95-10 Collar Index (CLLSM), an index designed to provide investors with insights as to how one might protect an investment in S&P 500 stocks against steep market declines.
This strategy accepts a ceiling or cap on S&P 500 gains in return for a floor on S&P 500 losses. The passive collar strategy reflected by the index entails:
- Holding the stocks in the S&P 500 index;
- Buying three-month S&P 500 (SPX) put options to protect this S&P 500 portfolio from market decreases; and
- Selling one-month S&P 500 (SPX) call options to help finance the cost of the put options.
The term "95-110" is used to describe the CLL Index because (1) the three-month put options are purchased at a strike price that is about 95 percent of the value of the S&P 500 Index at the time of the purchase (in other words, the puts are about five percent out-of-the-money), and (2) the one-month call options are written at a strike price that is about 110 percent of the value of the S&P 500 Index at the time of the sale (in other words, the calls are about ten percent out-of-the-money). The starting and base date CBOE S&P 500 95-10 Collar Index (CLL) is June 30, 1986, at which it was priced at 100. Daily closing values for the CLL Index should be available from major price quote vendors and at the link below.
The CLL Index is CBOE's first benchmark index to incorporate the downside floor protection of protective puts on the S&P 500 Index, financed by the sale of SPX call options, and will be a valuable resource for investors who want to explore ways to manage their portfolio risk in bear markets.