Matt Moran and Bruce Traan, both from CBOE, delivered the second session at this year’s CBOE Risk Management Conference in Hong Kong. Bruce kicked things off with a discussion titled “New Developments in Options and Volatility-Based Benchmarks”. Matt followed with “Options and Volatility Based Benchmark Indexes”.
Bruce noted that demand for passive investing is growing and smart-beta is the fastest growing segment of passive investing. He highlighted a variety of new strategy indexes being calculated and quoted at CBOE. This list includes the CBOE S&P 500® “Smile” Index, CBOE Target Outcome Indexes, CBOE SMA Large Cap Index, CBOE Stabilis Index, and a number of BuyWrite on ETF Asset Classes (TLT, USO, GLD, SLV).
With respect to the Buffer Protect Index series Bruce noted that the education process is more about demonstrating outcomes than how a strategy is constructed with options. Investors are more accepting of seeing an outcome than being bogged down with the details of what option trades are needed to create the final result.
A relatively new partnership exists between CBOE and Social Market Analytics (SMA). SMA quantitatively measures social media activity on Twitter and determines if the tenor with respect to a stock is positive or negative. CBOE now quotes two CBOE SMA Large Cap Indexes which measure the return of a hypothetical portfolio of 25 stocks with that have positive scores using SMA’s methodology. The two indexes only differ in that one rebalances daily and the other rebalances once a week. Both indexes have had pretty good performance as seen in the chart below.
Matt’s presentation covered the spectrum of benchmark indexes that are calculated and disseminated by CBOE. He highlighted the results of several recent studies that have demonstrated the benefits of systematic option strategies. In addition he notes that the number of funds using options has been expanding over time. He spent time covering the highlights of a study from Wilshire Analytics which took a look at five CBOE Benchmark Indexes. The study notes the performance for both the CBOE S&P 500 30-Delta BuyWrite Index (BXMD) and the CBOE S&P 500 PutWrite Index (PUT) have outperformed a buy and hold S&P 500 portfolio over a 30 year period. This performance was achieved with less volatility of returns than a market portfolio. Matt touched on several other studies that note the strong risk adjusted performance of buy-write and put-write strategies. The list of all benchmarks and a list of studies can be found at www.cboe.com/benchmarks
Matt also note the liquidity of the S&P 500 Index option market has expanded and topped over $190 billion of notional value on an average day in 2015. This massive pool of liquidity makes implementation of SPX strategies a smooth process for even the largest portfolio managers.