Chicago Board Options Exchange (CBOE) has launched the CBOE-SMA Large-Cap Weekly Index (SMLCWSM Index), the second in a series of sentiment-based strategy benchmark indices designed to capitalise on short-term market momentum based on Social Market Analytics’ (SMA) social media metrics.
The CBOE-SMLCW Index is reconstituted every Friday at 8:30 a.m. CT, representing a longer duration portfolio than the CBOE-SMA Large-Cap Index (SMLC), which is reconstituted daily.
CBOE launched the CBOE-SMA Large-Cap Index, the first of its sentiment-based benchmark indexes that measure market momentum based on SMA’s social media metrics, in August.
Similar to the first SMLC Index, the SMLC Weekly Index tracks the return of a hypothetical portfolio strategy designed to monetize the information in SMA S-Scores. SMA derives actionable signals that quantify market sentiment regarding stocks from social media data streams. S-Scores express rising or declining sentiment for different stocks.
The CBOE-SMLCW Index outperformed the cumulative returns for the S&P 500 Index on a one- month, year-to-date and one-year basis, according to a back-tested study of recent data, in part because the returns tend to be independent of bull or bear market cycles. The hypothetical SMLCW one-month return for the period between October 2014 and October 2016, for example, was 5.32 per cent, compared with the S&P 500’s 3.42 per cent, while the year-to-date return was 13.85 per cent compared with the S&P 500’s 7.58 per cent, and SMLCW’s one-year return stood at 9.88 per cent, versus 5.69 per cent for the S&P 500 Index.
The SMLCW Index portfolio comprises 25 equally weighted stocks drawn from the CBOE Large-Cap Universe – usually around 450 stocks – with the highest average five-period SMA S-Scores. Stocks in this universe are in the top 15 per cent capitalisation tranche of stocks that are the underlyings for options listed on the CBOE (approximately 3,000 stocks) and have a market capitalisation greater than or equal to USD10 billion. The large-cap universe is reconstituted quarterly on the third Friday of the month.
CBOE entered into an exclusive licensing agreement with SMA to develop a series of sentiment-based strategy benchmark indexes in May 2016.
