TUESDAY, MAY 27, 2014 — Here are the all-time record high daily closing values that were reached by nine CBOE benchmark indexes today –
- 256.68 VPD – CBOE VIX Premium Strategy Index
- 251.32 VPN – CBOE Capped VIX Premium Strategy Index
- 178.46 VXTH – CBOE VIX Tail Hedge Index
- 266.31 BXD – CBOE DJIA BuyWrite Index
- 1075.21 BXM – CBOE S&P 500 BuyWrite Index
- 1491.80 BXY – CBOE S&P 500 2% OTM BuyWrite
- 632.58 CLL – CBOE S&P 500 95-110 Collar Index
- 168.24 LOVOL – CBOE Low Volatility Index
- 1440.78 PUT – CBOE S&P 500 PutWrite Index
The above benchmark indexes use instruments such as the S&P 500® (SPX) options, or options or futures on the CBOE Volatility Index® (VIX®), with investment goals such as enhancing yield with options premiums, or managing risk with SPX puts or VIX calls. The buywrite indexes and the PUT index have benefited from the fact that they have sold one-month index options that usually have been richly priced, i.e., the implied volatility usually has been higher than subsequent realized volatility. The CBOE VIX Premium Strategy Index (VPD) tracks the value of a portfolio that overlays a sequence of short one-month VIX futures on a money market account.
A 2013 BlackRock paper - VIX Your Portfolio – Selling Volatility to Improve Performance noted that – “A strategy that systematically sells volatility on a diversified equity index should capture a positive risk premium over long horizons because it is similar to selling insurance,” and the paper highlighted these volatility-selling strategies –
- Selling SPX index options per the CBOE S&P 500 PutWrite Index (PUT),
- Selling one-month O-T-C variance swaps, collateralized with Treasury bills,
- Selling futures on the CBOE Volatility Index® (VIX®), collateralized with Treasury bills.
PRICE CHARTS FOR 3 OF THE 9 BENCHMARK INDEXES
Here are price charts for three of the indexes that reached record daily closing values on May 27 –
HOW HAVE OPTIONS-BASED INDEXES FARED OVER THE PAST QUARTER-CENTURY?
A prudent, inquisitive investor might acknowledge that it is nice for an index to reach an all-time record, but the investor also could inquire about a long-term comparison of the performance of many indexes. The chart below shows that since the inception date for BXY price history (June 1, 1988), the options-based BXY and PUT indexes have had higher returns than the S&P 500, S&P GSCI, and MSCI EAFE indexes. Furthermore, over that time period, all three options-based indexes (BXY, PUT and BXM) have had lower volatility than the S&P 500, S&P GSCI, and MSCI EAFE indexes. To read more studies and charts related to the benchmark indexes, please visit www.cboe.com/benchmarks.