The first session of the 33rd Annual CBOE Risk Management Conference featured Teri Geske from Wilshire Associates and Michael Oyster from Fund Evaluation Group. Their presentation focused on white papers that discuss BuyWrite and PutWrite benchmark indexes that were created by CBOE.
Michael Oyster went first noting that the long term trend for yields has been to the downside. He then discussed the performance of benchmark indexes that utilize Russell 2000 (RUT) Index options. The performance of the CBOE Russell 2000 PutWrite Index (PUTR) was highlighted as beating the Russell 2000 on an absolute and risk adjusted basis. He also discussed the draw down of Russell 2000 benchmark strategies noting that the maximum draw downs showed these strategies protecting capital better than just owning a Russell 2000 portfolio. A surprising outcome of his work noted that the standard deviation of option writing funds, which is now a Morningstar category, is lower than the CBOE S&P 500 BuyWrite Index (BXM) and S&P 500.
Teri Geske stepped up and discussed a study conducted by Wilshire focusing on S&P 500 Index option based benchmark indexes. The Wilshire study analyzed a variety of returns from June 1986 through June 2016. It was noted over this thirty year period CBOE S&P 500 30-Delta BuyWrite Index (BXMD) and CBOE S&P 500 PutWrite Index (PUT) outperform the total return of the S&P 500 (think buy and hold) on an absolute basis On a risk adjusted basis many of the strategy benchmark indexes quoted by CBOE also outperform buy and hold portfolios. She also noted that realized volatility has been consistently lower than implied volatility each year from 1998 to 2015 with one exception (2008). A final, very impressive statistic, was the average dollar daily volume for SPX options for the 12 months ended June 2016 which came to over $208 billion.
The white paper Evaluating Options for Enhanced Risk-Adjusted Returns may be downloaded at www.cboe.com/feg
A presentation titled Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis may be downloaded at www.cboe.com/wilshire
Finally, toward the end of the presentation a discussion commenced about the difference between comparable BuyWrite and PutWrite strategies with a paper by Catherine Shalen of CBOE being referenced. This study may be found at this link https://www.cboe.com/micro/bxm/bxm-put-conundrum.pdf