A new study from The Chicago Board Options Exchange (CBOE) examines the monthly CBOE S&P 500 PutWrite Index and the CBOE S&P 500 One-Week PutWrite Index, comparing their performance with that of traditional benchmark stock and bond indexes.
This is the first comprehensive study that examines the performance of a benchmark strategy index that incorporates Weeklys options.
Written by Oleg Bondarenko (pictured), professor of finance at the University of Illinois at Chicago, and sponsored by CBOE, the study – “An Analysis of Index Option Writing with Monthly and Weekly Rollover” – analyses the performance of the two PutWrite Indexes through the end of 2015. Among his findings, Bondarenko found that the two PutWrite indexes had strong performance in several areas:
Annual premium income. From 2006 to 2015 (CBOE introduced Weeklys options in 2005), the average annual gross premium collected was 24.1 per cent for the PUT Index and 39.3 per cent for the WPUT Index, the study found. While a one-time premium collected by the weekly WPUT Index usually was smaller than a one-time premium collected by the monthly PUT Index, the WPUT Index had higher aggregate annual premiums because premiums were collected 52 times, rather than 12 times, per year.
Lower risk. Over the last 10 years, since the launch of Weeklys options, the WPUT Index had a lower standard deviation than the PUT and S&P 500 Indexes, and the maximum drawdowns were down 24.2 per cent for the WPUT Index, 32.7 per cent for the PUT Index and 50.9 per cent for the S&P 500 Index.
Higher long-term returns with lower volatility. Looking longer-term with the PUT Index, since mid-1986, the annual compound return of the PUT Index was 10.13 percent, compared with 9.85 per cent for the S&P 500 Index. The standard deviation of the PUT Index was substantially lower as well, 10.16 per cent versus the S&P 500 Index’s 15.26 per cent.
The CBOE S&P 500 One-Week PutWrite Index (WPUT) tracks the performance of a hypothetical investment strategy that sells a sequence of at-the-money S&P 500 Index (SPX) put options on a weekly basis. The maturity of the written SPX put option is always one week to expiry. The written SPX put option is collateralised by a money market account invested in one-month Treasury bills. CBOE provides historical data on the WPUT Index dating to January 2006.
The PUT Index tracks the performance of a hypothetical investment strategy that sells a sequence of one- month, at-the-money SPX puts and invests cash in one- and three-month Treasury bill rates. The number of puts sold varies from month to month, but is limited so that the amount held in Treasuries can finance the maximum possible loss from final settlement of the SPX puts. CBOE provides historical data on the PUT Index dating to mid-1986.
