Ten Year Chart Of VIX Index ......... [spike is 2008 crash ] ...*


Share |

New Wilshire Study: BXMD and PUT Indexes Offered Higher Returns, Lower Volatility Over Three Decades

By Matt Moran

SEPT. 21, 2016 – Wilshire Associates recently was ranked as one of the world’s ten largest investment consultants, due to the fact that it had more than $1 trillion in worldwide institutional assets under advisement, according to the survey published in the Nov. 30, 2015 issue of Pensions & Investments.

A new study – “Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis – was released today. The study 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

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.

RETURNS AND VOLATILITY OVER 30 YEARS

As shown in the first charts below, over the three-decade period, the option-selling indexes (BXMD, PUT and BXM) all had higher returns than the option-buying index (PPUT) and the MSCI EAFE and S&P GSCI indexes. Index option-selling indexes can benefit from the fact that the implied volatility usually has exceeded realized volatility, as is shown in Exhibit 8 of the study.

1 returns Wilshire New Wilshire Study: BXMD and PUT Indexes Offered Higher Returns, Lower Volatility Over Three Decades at vixtrade.com

2 Volatility by Wilshire New Wilshire Study: BXMD and PUT Indexes Offered Higher Returns, Lower Volatility Over Three Decades at vixtrade.com

EFFICIENT FRONTIER

The five options-based indexes are shown in the triangle symbols on the Efficient Frontier chart.

3 Efficient Frontier Wilshire  New Wilshire Study: BXMD and PUT Indexes Offered Higher Returns, Lower Volatility Over Three Decades at vixtrade.com

NEW HEAT MAP

A new “heat map” uses color coding to rank returns across asset class by year (within each column).

4 Heat Map 1st New Wilshire Study: BXMD and PUT Indexes Offered Higher Returns, Lower Volatility Over Three Decades at vixtrade.com

5 Heat map 2nd New Wilshire Study: BXMD and PUT Indexes Offered Higher Returns, Lower Volatility Over Three Decades at vixtrade.com

 

Over the past 15 years, option-writing strategies, particularly the BXMD and PUT strategies, typically had above-average returns and were rarely among the lower-performing asset classes.  Other asset classes were occasionally top performers but also were ranked at or near the bottom more than once. Past performance is not predictive of future returns.  Sources:  Bloomberg, CBOE, St. Louis Federal Reserve Bank and Wilshire Associates.

$200 BILLION IN AVERAGE DAILY NOTIONAL VOLUME FOR SPX OPTIONS

After hearing about the strong performance of certain CBOE benchmark indexes, institutional investors often ask me about market capacity for SPX options. The study presents a chart that shows that the estimated notional value of average daily volume in SPX options grew to more than $200 billion in the last 12 months studied.

 6 Capacity Volume VIX Wilshire  New Wilshire Study: BXMD and PUT Indexes Offered Higher Returns, Lower Volatility Over Three Decades at vixtrade.com

 

CONCLUSION

For links to the entire new paper by Wilshire Analytics and to more information about CBOE benchmark indexes, please visit www.cboe.com/benchmarks.

 

 

 New Wilshire Study: BXMD and PUT Indexes Offered Higher Returns, Lower Volatility Over Three Decades at vixtrade.com >

Weekend Review – VIX Options and Futures – 9/11/2016

The streak of SPX doldrums came to an end on Friday with the orderly drop of over 50 points for which resulted in VIX rising to 17.50.  Everything worth noting happened on Friday which may have added to the angst that resulted in the S&P 500 closing near the daily lows and VIX closing near the daily highs.

VIX Curve Table Weekend Review – VIX Options and Futures – 9/11/2016 at vixtrade.com

Early Friday when VIX was at 13.93 and the big move was just getting started there was a split strike trade that came into the pit.  With the October future at 16.35 a trader sold over 12,000 VIX Oct 13.50 Puts for 0.31 and then purchased the same number of VIX Oct 25 Calls for 0.64 and a net cost of 0.33.  The payout shows up below.

VIX PO Weekend Review – VIX Options and Futures – 9/11/2016 at vixtrade.com

As noted at the beginning of this blog the October VIX contract settled at 17.875 or over 1.50 higher than when this trade was executed.  This led me to check closing prices for the two options in this spread.  The 13.50 Puts could be repurchased for 0.35 and the 25.00 Calls sold at 1.00.  Therefore, the spread that cost 0.33 to enter finished the day at 0.65 or a penny under a double.

 Weekend Review – VIX Options and Futures – 9/11/2016 at vixtrade.com >

Weekend Review – Volatility Indexes and ETPs – 9/11/2016

VXST more than doubled as a function of the index being depressed in front of the three-day weekend and then in reaction to Friday’s SPX sell off.  As would be expected, the rest of the VXST-VIX-VXV-VXMT curve moved higher as well, but outside of VXST relative to VIX we are still in a state of contango.

VXST VIX VXV VXMT 1 Weekend Review – Volatility Indexes and ETPs – 9/11/2016 at vixtrade.com

The 2.39% drop in the S&P 500 all came from Friday’s price action as did just about everything else on the table below.  Note that VXX rose 11% and UVXY gained over 22%, both doing what they were designed to do, allow traders the ability to benefit from quick spikes in volatility.

VXX Table 1 Weekend Review – Volatility Indexes and ETPs – 9/11/2016 at vixtrade.com

Despite the great week for VXX and UVYX both funds are still much lower on the year.  This time last week, SVXY YTD performance was up over 50% now the fund’s return stands at just over 31%.

VXX SVXY UVXY Weekend Review – Volatility Indexes and ETPs – 9/11/2016 at vixtrade.com

As expected the leaders among the volatility indexes were related to broad based market indexes.  The VVIX move to over 110% is worth noting since that index has a relatively high levels for most of 2016 when compared to the historical range.  I did find it interesting that the only three indexes that lost value last week were currency related.

Vol Index Prices Weekend Review – Volatility Indexes and ETPs – 9/11/2016 at vixtrade.com

 Weekend Review – Volatility Indexes and ETPs – 9/11/2016 at vixtrade.com >