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Index IDEA: Options strategies view small-cap volatility through a new lens

While indexes measuring US small-cap stocks have retreated in 2018 amid heightened US equity market volatility, four indexes designed to benchmark US small-cap options strategies have fared better year-to-date, according to new data from the Chicago Board Options Exchange (Cboe) and global index provider FTSE Russell.

While the Russell 2000 Index was up slightly for 2018 as of market close on Friday, October 12, the Cboe Russell 2000 BuyWrite Index (BXR), 30 Delta BuyWrite Index (BXRD), Conditional BuyWrite Index (BXRC) and Zero Cost Put Spread Collar Index (CLLR) have all posted higher relative returns for the same time period.

Cboe benchmark indexes measure the performance of strategies using index options:

  • The Cboe Russell 2000 BuyWrite Index is a suitable benchmark for a portfolio that sells Russell 2000 Index call options against a portfolio of the stocks included in the Russell 2000 Index. 

  • The Cboe Russell 2000 Conditional BuyWrite Index is a suitable benchmark for a covered call strategy that holds a long position indexed to the Russell 2000 Index and sells a monthly at-the-money Russell 2000 Index call option. 

  • The Cboe Russell 2000 30 Delta BuyWrite Index is a suitable benchmark for a covered call strategy that holds a long position indexed to the Russell 2000 Index and sells a monthly out-of-the-money Russell 2000 Index call option.

  • The Cboe Russell 2000 Zero Cost Put Spread Collar Index is a suitable benchmark for an options trading strategy that 1) holds a long position indexed to the Russell 2000 Index; 2) on a monthly basis buys a 2.5-5% Russell 2000 Index put option spread; and 3) sells a monthly out-of-the-money Russell 2000 call option to cover the cost of the put spread.

Sean Smith – managing director, derivatives licensing, FTSE Russell:

“It is important for investors to have access to index tools that accurately measure the relative performance of options strategies across different market cycles. The relative performance of the Russell 2000 Index to Russell 2000 Index-based options strategies from Cboe in 2018 helps illustrate the importance to investors of having additional index tools to help assess and manage market risk.”

Richard Rosenthal – director, business development, Cboe:

“Investors often implement options-based strategies in their portfolios to manage market risk and the Cboe benchmark indexes can be an important tool to pursue this objective.”

For more information on derivatives based on indexes from FTSE Russell, go to the FTSE Russell website.

 

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© 2018 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE Global Debt Capital Markets Inc. and FTSE Global Debt Capital Markets Limited (together, “FTSE GDCM”), (4) MTSNext Limited (“MTSNext”), (5) Mergent, Inc. (“Mergent”), (6) FTSE Fixed Income LLC (“FTSE FI”) and (7) The Yield Book Inc (“YB”). All rights reserved.

FTSE Russell® is a trading name of FTSE, Russell, FTSE GDCM, MTS Next Limited, Mergent, FTSE FI and YB. “FTSE®”, “Russell®”, “FTSE Russell®”, “MTS®”, “FTSE4Good®”, “ICB®”, “Mergent®”, “WorldBIG®”, “USBIG®”, “EuroBIG®”, “AusBIG®”, “The Yield Book®”,  and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, FTSE GDCM, Mergent,  FTSE FI or YB. “TMX®” is a registered trademark of TSX Inc. FTSE International Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator.

All information is provided for information purposes only. All information and data contained in this publication is obtained by the LSE Group, from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data is provided "as is" without warranty of any kind. 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 accuracy, timeliness, completeness, merchantability of any information or of results to be obtained from the use of the FTSE Russell Indexes or the fitness or suitability of the FTSE Russell Indexes for any particular purpose to which they might be put. Any representation of historical data accessible through FTSE Russell Indexes is provided for information purposes only and is not a reliable indicator of future performance.

Views expressed by Sean Smith of FTSE Russell and Rick Rosenthal of Cboe are as of October 17th and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the LSE Group.

No responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for (a) any loss or damage in whole or in part caused by, resulting from, or relating to any error (negligent or otherwise) or other circumstance involved in procuring, collecting, compiling, interpreting, analysing, editing, transcribing, transmitting, communicating or delivering any such information or data or from use of this document or links to this document or (b) any direct, indirect, special, consequential or incidental damages whatsoever, even if any member of the LSE Group is advised in advance of the possibility of such damages, resulting from the use of, or inability to use, such information.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing contained in this document or accessible through FTSE Russell Indexes, including statistical data and industry reports, should be taken as constituting financial or investment advice or a financial promotion.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group data requires a licence from FTSE, Russell, FTSE GDCM, MTSNext, Mergent, FTSE FI, YB and/or their respective licensors.

Cboe® and Chicago Board Options Exchange®, are registered trademarks of Chicago Board Options Exchange, Incorporated (Cboe). This data is believed to be correct but CBOE does not guarantee the accuracy of the data and will not be held liable for consequences of its use.

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