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Index IDEA: New CBOE study digs into US small caps

CBOE recently commissioned a study by Mark Shore, the Chief Research Officer at Shore Capital Research and Adjunct Professor at DePaul University in Chicago. Shore’s February 2016 study - Analyzing Russell 2000 Options-Based Benchmark Indexes Designed to Provide Enhanced Yields and Risk-Adjusted Returns - found that both the hypothetical return and standard deviation for a consistent Russell 2000® Index put selling strategy as reflected by the CBOE Russell 2000 PutWrite Index were stronger than buy and hold return and standard deviation for the Russell 2000 Index for the fifteen year period ended December 2015.

The CBOE Russell 2000 PutWrite Index had a 9.1% annualized return and 14.1% annualized standard deviation for the period as compared to 8.7% and 19.5%, respectively, for the Russell 2000 Index.


Annualized Returns & Standard Deviation: January 2001 – December 2015
CBOE Russell 2000 PutWrite Index & Russell 2000 Index

Sources: Bloomberg, CBOE. Annualized returns of the CBOE Russell 2000 PutWrite Index and Russell 2000 Index. Data is from January 2001 to December 2015. Data for the CBOE Russell 2000 PutWrite Index is hypothetical back-tested data. Past performance is no guarantee of future results.Please see the end for important legal disclosures.


Pat Fay, Global Director of Index Derivatives, FTSE Russell:
“The CBOE Russell 2000 PutWrite Index had a higher return with less volatility than the Russell 2000 Index over the last 15 years. This helps illustrate the power for some market participants of using options-based indexes as portfolio analysis and diversification  tools.”

Mark Shore, Chief Research Officer, Shore Capital Research, LLC:
“In addition to higher long-term returns, the CBOE Russell 2000 PutWrite Index has experienced less dramatic drawdowns in bearish markets and quicker recoveries than the Russell 2000 Index.”   

The CBOE Russell 2000 PutWrite Index is designed to track the performance of a hypothetical strategy that sells a monthly at-the-money (ATM) Russell 2000 index put option. The written Russell 2000 put option is collateralized by a money market account invested in one-month Treasury bills. The PUTR index rolls on a monthly basis, typically every third Friday of the month.

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All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.

Views expressed by Pat Fay and Mark Shore of Shore Capital Research, LLC are as of March 16th and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the London Stock Exchange Group.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the CBOE Russell 2000 PutWrite Index or Russell 2000® Index or the fitness or suitability of the indexes for any particular purpose to which they might be put.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this IDEA should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

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Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back- tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.

 

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