Options indices have produced noteworthy returns over the last 30 years, according to a study by the Chicago Board Options Exchange (CBOE) and Wilshire Analytics.
The study – Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis – commissioned by CBOE and authored by Wilshire Analytics’ Applied Research Group is the first to survey 30 years of data related to benchmarks engaged in the buying and/or selling of index options.
Wilshire Analytics analysed the performance of several indexes over a period of 30 years, from 30 June 1986 through June 30 2016, including five indices that sell and/or buy options on the S&P 500 (SPX) Index: CBOE S&P 500 BuyWrite Index (BXM); CBOE S&P 500 30-Delta BuyWrite Index (BXMD); CBOE S&P 500 Zero-Cost Put Spread Collar Index (CLLZ); CBOE S&P 500 5% Put Protection Index (PPUT); and CBOE S&P 500 PutWrite Index (PUT).
The performance of these indices was compared with certain other key stock, bond and commodity indices that represent asset classes typically found in the investment portfolios of institutions and individual investors.
The study found that two indices that sold SPX options every month to collect option premium income – PUT and BXMD – both had higher absolute returns and higher risk-adjusted returns than the other indexes studied, while each of the five option-based indices had lower volatility than all the other indices included in the study, other than the fixed-income index.
The maximum drawdown for the options-based indices was 24 per cent lower, on average, than for the S&P 500 Index, while the notional value of SPX options’ average daily volume grew significantly over the last 10 years; it was more than USD00 billion for the 12 months ended June 2016, the most recent year studied.
In addition, analysis of actual pension plan allocations suggests plan sponsors would have benefited from the addition of index-based buy-write option strategies.
