Ten New CBOE Benchmark Indexes – Tools for Risk Management and Yield-enhancement

Today CBOE® announced in a press release that it has created 10 new options-based strategy performance benchmark indexes that are designed to highlight the long-term utility of options as risk management and yield- enhancing investment tools. CBOE will disseminate intra-day values for the new benchmarks beginning August 3, 2015 at the page www.cboe.com/benchmarks. The new benchmark indexes use popular S&P 500® Index (SPX) Weeklys options to create new versions of two of CBOE’s flagship strategy benchmark indexes — the CBOE S&P 500 BuyWrite Index (BXM) and the CBOE S&P 500 PutWrite (PUT) Index — as well as completely new risk-managed option selling strategies featuring S&P 500 Index (SPX) and CBOE Volatility Index® (VIX®) options.

CHART SHOWING LESS VOLATILITY

Six of the ten new indexes (as well as CBOE’s BXM, PUT and CLL indexes) have data history going back more than 29 years, to June 30, 1986.

While there still are some investors who think that all options strategies are inherently volatile and risky, a very striking fact is shown in Exhibit 1 below – all nine of the options-based benchmark indexes in the Exhibit had less volatility over the 29-year time period than the three “traditional” indexes – the S&P 500®, MSCI EAFE®, and S&P GSCI indexes.

Exhibit 1

1 - St Dev
DESCRIPTION OF TEN NEW BENCHMARK INDEXES

A description of each index follows:

1. CBOE S&P 500 Multi-Week BuyWrite Index (BXMW)
The CBOE S&P 500 Multi-Week BuyWrite Index is designed to track the performance of a weekly covered call strategy with staggered short positions in call options expiring in consecutive four week options. The BXMW Index is constructed as a combined portfolio of four mini BuyWrite indexes. Expirations are staggered so that the BXMW Index sells four-week options on a rolling weekly basis.
2. CBOE S&P 500 One-Week PutWrite Index (WPUT)
The CBOE S&P 500 One-Week PutWrite Index is designed to track the performance of a strategy that sells an at-the-money (ATM) S&P 500 Index (SPX) put option on a weekly basis. The maturity of the written SPX put option is always one week to expiry. The written SPX put option is fully collateralized by a money market account.

3. CBOE S&P 500 Zero-Cost Put Spread Collar Index (CLLZ)
The CBOE S&P 500 Zero-Cost Put Spread Collar Index is designed to track the performance of a low volatility strategy that 1) holds a long position indexed to the S&P 500 Index; 2) on a monthly basis buys a 2.5% – 5% S&P 500 Index (SPX) put option spread; and 3) sells a monthly out-of-the-money (OTM) SPX call option to fully cover the cost of the put spread.

4. CBOE S&P 500 Iron Condor Index (CNDR)
The CBOE S&P 500 Iron Condor Index is designed to track the performance of a hypothetical option trading strategy that 1) sells a rolling monthly out-of-the-money (OTM) S&P 500 Index (SPX) put option (delta ≈ – 0.15) and a rolling monthly out-of-the-money (OTM) SPX call option (delta ≈ 0.15); 2) buys a rolling monthly OTM SPX put option (delta ≈ – 0.05) and a rolling monthly OTM SPX call option (delta ≈ 0.05) to reduce risk; and 3) holds a fixed income account which is rebalanced on option roll days to limit the downside return of the index.

5. CBOE S&P 500 Iron Butterfly Index (BFLY)
The CBOE S&P 500 Iron Butterfly Index is designed to track the performance of a hypothetical option trading strategy that 1) sells a rolling monthly at-the-money (ATM) S&P 500 Index (SPX) put and call option; 2) buys a rolling monthly 5% out-of-the-money (OTM) SPX put and call option to reduce risk; and 3) holds a fixed income account which is rebalanced on the option roll day to limit the downside return of the index.

6. CBOE VIX Strangle Index (STGV)
The CBOE VIX Strangle Index is designed as a premium capture index. The index overlays short CBOE Volatility Index (VIX) call and put options with a capped long VIX call option position. The position is collateralized by fixing the number of strangles such that 80% of capital is reserved.

7. CBOE S&P 500 Covered Combo Index (CMBO)
The CBOE S&P 500 Covered Combo Index is designed to track the performance of a “short strangle” strategy collateralized by a portfolio holding a long position indexed to the S&P 500 Index and a fixed income account. The CMBO Index sells a monthly at-the-money (ATM) S&P 500 Index (SPX) put option and a monthly 2% out-of-the-money (OTM) SPX call option. The short put position is fully collateralized by the money market account and the 2% OTM SPX call is collateralized by the long SPX Index position.

8. CBOE S&P 500 5% Put Protection Index (PPUT)
The CBOE S&P 500 5% Put Protection Index is designed to track the performance of a strategy that holds a long position indexed to the S&P 500 Index and buys a monthly 5% out-of-the-money (OTM) S&P 500 Index (SPX) put option as a hedge.

9. CBOE S&P 500 30-Delta BuyWrite Index (BXMD)
The CBOE S&P 500 30-Delta BuyWrite Index is designed to track the performance of a yield-enhancement strategy that holds a long position indexed to the S&P 500 Index and sells a monthly out-of-the-money (OTM) S&P 500 Index (SPX) call option. The call option written is the strike nearest to the 30 Delta at 10:00 a.m. CT on the Roll Date. The BXMD Index rolls on a monthly basis, typically every third Friday of the month.

10. CBOE S&P 500 Conditional BuyWrite Index (BXMC)
The CBOE S&P 500 Conditional BuyWrite Index is designed to track the performance of a yield-enhancement strategy that holds a long position indexed to the S&P 500 Index and sells a monthly at-the-money (ATM) S&P 500 Index (SPX) call option. The written number of ATM call options will be either ½ unit or 1 unit and will be determined by the level of the CBOE Volatility Index (VIX Index) when the call option is written on the Roll Date. The BXMC Index rolls on a monthly basis, typically every third Friday of the month.

MORE CHARTS ON INDEX PERFORMANCE

Exhibits 2 and 3 show that the new CBOE S&P 500 30-Delta BuyWrite Index (BXMD) had higher returns than the three “traditional” indexes – the S&P 500®, MSCI EAFE®, and S&P GSCI indexes.

Exhibit 2

2- Annual Ret
Exhibit 3
3 line chart
Exhibit 4 provides a histogram showing that the CBOE S&P 500 30-Delta BuyWrite Index (BXMD) has had fewer extreme moves (up or down) than the S&P 500 Index.

Exhibit 4

4 Histogram

MORE INFORMATION

Manager testimonials and a 2015 study on funds’ use of options can be found at www.cboe.com/funds.

More information about CBOE’s current and new benchmark indexes will be available next week at www.cboe.com/benchmarks.

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