New Wilshire Analytics Study Finds Options Indexes Offered Noteworthy Returns Over 30 Years
OREANDA-NEWS. September 22, 2016. Chicago Board Options Exchange® (CBOE®) and Wilshire Analytics, the investment technology foundation of Wilshire Associates Inc. (Wilshire®), today announced the release of a new analysis of the performance of options-based benchmark indexes.
The study, “Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis,” was commissioned by CBOE and authored by Wilshire Analytics’ Applied Research Group. It is the first major study that surveys 30 years of data related to benchmarks engaged in the buying and/or selling of index options.
Wilshire Analytics analyzed the performance of several indexes over a period of 30 years, from June 30, 1986 through June 30, 2016, including five indexes 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)
- CBOE S&P 500 PutWrite Index (PUT)
The performance of these indexes was compared with certain other key stock, bond and commodity indexes that represent asset classes typically found in the investment portfolios of institutions and individual investors. Key findings of the 30-year study include:
- Higher Absolute and Risk-Adjusted Returns: Two indexes 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.
- Lower Volatility: Each of the five option-based indexes had lower volatility than all the other indexes included in the study, other than the fixed-income index.
- Less Downside Risk: The maximum drawdown for the options-based indexes was 24 percent lower, on average, than for the S&P 500 Index.
- Market Capacity and Liquidity: The notional value of SPX options’ average daily volume grew significantly over the last 10 years; it was more than \\$200 billion for the 12 months ended June 2016, the most recent year studied.
- Pension Plan Allocations: Analysis of actual pension plan allocations suggests plan sponsors would have benefited from the addition of index-based buy-write option strategies.
About CBOE Benchmarks
Since 2002, CBOE has been a worldwide leader in creating benchmark indexes designed to help investors track the performance of investment strategies that use options or volatility products to help manage risk and enhance yield. CBOE currently publishes data on more than 30 strategy performance benchmark indexes, including BXM, PUT and the CBOE VIX Tail Hedge Index (VXTH). Links to the new paper, as well as additional information on all of CBOE’s strategy performance benchmark indexes, can be found at www.cboe.com/benchmarks. Manager testimonials and lists of funds that use options and volatility can be found at www.cboe.com/funds.
CBOE, the largest U.S. options exchange and creator of listed options, continues to set the bar for options and volatility trading through product innovation, trading technology and investor education. CBOE Holdings offers equity, index and ETP options, including proprietary products, such as options and futures on the CBOE Volatility Index (VIX Index) and S&P 500 options (SPX), the most active U.S. index option. Other products engineered by CBOE include equity options, security index options, Weeklys options, FLEX options and benchmark products such as the CBOE S&P 500 BuyWrite Index (BXM). CBOE Holdings is home to the world-renowned Options Institute, Livevol options analytics and data tools, and www.cboe.com, the go-to place for options and volatility trading resources.
Wilshire Associates (Wilshire®), a leading global financial services firm founded in 1972, provides consulting services, analytics solutions and customized investment solutions to plan sponsors, investment managers and financial intermediaries. Its business units include Wilshire Analytics, Wilshire Consulting, Wilshire Funds Management and Wilshire Private Markets. The firm was founded in 1972, providing revolutionary technology and acting as an early innovator in the application of investment analytics and research to investment managers in the institutional marketplace. Wilshire also is credited with helping to develop the field of quantitative investment analysis that uses mathematical tools to analyze market risks. All other business units evolved from Wilshire’s strong analytics foundation. For more about Wilshire Associates, visit www.wilshire.com.