options- and volatility-based strategy benchmark indexes · by matt moran, vp, cboe. cboe rmc asia....

By Matt Moran, VP, CboeCboe RMC Asiaat Conrad Hong Kong12:30 p.m. on Tuesday, 5 Dec. 2017

Options- and Volatility-Based Strategy Benchmark Indexes

FAQ on Strategies Designed for Portfolio Management

Cboe’s Options- and Volatility-Based Strategy Benchmark Indexes

www.cboe.com/benchmarks www.cboe.com/index

BuyWrite IndexesBXM Cboe S&P 500 BuyWrite IndexBXD Cboe DJIA BuyWrite IndexBXMC Cboe S&P 500 Conditional BuyWrite IndexBXMD Cboe S&P 500 30-Delta BuyWrite IndexBXMW Cboe S&P 500 Multi-Week BuyWrite Index BXN Cboe Nasdaq BuyWrite IndexBXR Cboe Russell 2000 BuyWrite IndexBXRC Cboe Russell 2000 Conditional BuyWrite IndexBXRD Cboe Russell 2000 30-Delta BuyWrite IndexBXY Cboe S&P 500 2% OTM BuyWrite Index

PutWrite IndexesPUT Cboe S&P 500 PutWrite IndexPUTR Cboe Russell 2000 PutWrite IndexWPUT Cboe S&P 500 One-Week PutWrite IndexWPTR Cboe Russell 2000 One-Week PutWrite Index

Combo, Butterfly & Condor IndexesCMBO Cboe S&P 500 Covered Combo IndexBFLY Cboe S&P 500 Iron Butterfly IndexCNDR Cboe S&P 500 Iron Condor Index

Collar IndexesCLL Cboe S&P 500 95-110 Collar IndexCLLR Cboe Russell 2000 Zero-Cost Put Spread Collar IndexCLLZ Cboe S&P 500 Zero-Cost Put Spread Collar

Risk Reversal Index

RXM Cboe Risk Reversal Index

SMILE Index

SMILE Cboe SMILE Index

Put Protection Index

PPUT Cboe S&P 500 5% Put Protection Index

Volatility-related Benchmark Indexes

VPD Cboe VIX Premium Strategy IndexVPN Cboe Capped VIX Premium Strategy IndexVXTH Cboe VIX Tail Hedge IndexLOVOL Cboe Low Volatility IndexVSTG Cboe VIX Strangle Index

Target Outcome Indexes

SPRO Cboe S&P 500 Buffer Protect Index Balanced SeriesSPEN Cboe S&P 500 Enhanced Growth Index Balanced SeriesSPRI Cboe S&P 500 Range Bound Premium Income Index SeriesSPAI Cboe S&P 500 Dividend Aristocrats Target Income Index

http://www.cboe.com/benchmarks

http://www.cboe.com/index

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Four Options-based Benchmarks -- Descriptions

Index StrategyYear

IntroducedEarliest Historical

Price

CBOE S&P 500 Buy Write Index (BXM)

Purchase stocks in the S&P 500 index, and each month sell at-the-money index call options

2002 June 30, 1986

CBOE S&P 500 2% OTM Buy Write Index (BXY)

Purchase stocks in the S&P 500 index, and each month sell index call options 2% out-of-the-money

2006 June 1, 1988

CBOE S&P 500 PutWrite Index (PUT)

Purchase Treasury bills and sell cash-secured put options on the S&P 500 index

2007 June 30, 1986

CBOE S&P 500 95-110 Collar Index (CLL)

Purchase stocks in the S&P 500 index, and each month sell index call options at 110% of the index value, and each quarter purchase index put options at 95% of the index value

2008 June 30, 1986

Excerpted from --"Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs” (January 2015) Please see the last slide for important disclosures.

Descriptions of several more benchmark indices are in the Appendix.

www.cboe.com/benchmarks www.cboe.com/index


http://www.cboe.com/index

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1) Which Cboe benchmark indexes have had the strongest performance over the past three decades?

2) Why have indexes that sell SPX index options (BXMD, PUT, & BXM) had higher returns than the PPUT that buys protective put options?

3) Have option-writing benchmarks had strong relative performance in “low”-VIX environments?

4) Have put-writing indexes been risky with huge drawdowns?5) How do the performances of benchmarks that write puts once a week (WPUT & WPTR)

compare to those of benchmarks that write puts once a month (PUT & PUTR)?6) Why have putwrite indexes that sell index puts (PUT and PUTR) had stronger performance

than buywrite indexes that sell index calls (BXM and BXR)?7) How does the performance of O-T-M buywrite benchmarks (BXY and BXMD) compare to

the performance of A-T-M buywrite benchmark index (BXM)?8) Have some VIX-based benchmark indexes had strong returns and/or shown potential as

diversification tools over the past 11 years?9) What are key metrics for comparing risk-adjusted returns of Cboe benchmark indices?10) How have Morningstar and pension consulting firms treated Cboe benchmark indices?11) How has the news media recently treated Cboe’s benchmark indexes?

Questions re: Cboe Benchmark Indexes

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1) Which Cboe benchmark indexes have had the strongest performance over the past three decades?

BXMD, S&P 500 and PUT had the highest returnssince mid-1986

CNDR, PUT and BXM had the lowest volatilitysince mid-1986

Sharpe ratios since mid-1986 – PUT 0.69; BXMD 0.58; BXM 0.53; S&P 500 0.47 (see Appendix 2).Past performance is not predictive of future returns.

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Heat Map by Wilshire at www.cboe.com/wilshire

This “heat map” uses color to rank returns across asset class by year (within each column). 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. Excerpted from Paper by Wilshire: Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis (2016) (at www.cboe.com/benchmarks)Sources: Bloomberg, CBOE, St. Louis Federal Reserve Bank and Wilshire Associates. Please read important disclosures at www.cboe.com/benchmarks.

Exhibit 3

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CBOE S&P 500 BuyWrite (BXM) -10.9% -7.6% 19.4% 8.3% 4.2% 13.3% 6.6% -28.7% 25.9% 5.9% 5.7% 5.2% 13.3% 5.6% 5.2%

CBOE S&P 500 30-Delta BuyWrite

(BXMD)-8.9% -13.2% 25.9% 10.4% 5.0% 17.8% 6.2% -31.3% 32.1% 11.2% 7.3% 11.0% 19.1% 6.2% 4.0%

CBOE S&P 500 PutWrite (PUT) -10.6% -8.6% 21.8% 9.5% 6.7% 15.2% 9.5% -26.8% 31.5% 9.0% 6.2% 8.1% 12.3% 6.4% 6.4%

CBOE S&P 500 Zero-Cost Put Spread Collar

(CLLZ)-10.1% -16.0% 18.0% 6.2% 3.0% 13.9% 4.4% -31.7% 24.7% 6.7% 3.1% 11.1% 16.4% 4.2% 2.0%

CBOE S&P 500 5% Put Protection (PPUT) -2.1% -17.6% 19.3% 6.0% 2.3% 12.3% -0.5% -20.1% 8.7% 11.7% -1.4% 10.0% 27.1% 11.2% -5.1%

S&P 500 -11.9% -22.1% 28.7% 10.9% 4.9% 15.8% 5.5% -37.0% 26.5% 15.1% 2.1% 16.0% 32.4% 13.7% 1.4%

MSCI EAFE (US$ Net) -21.4% -15.9% 38.6% 20.2% 13.5% 26.3% 11.2% -43.4% 31.8% 7.8% -12.1% 17.3% 22.8% -4.9% -0.8%

BAML Invest. Grade Corporate Bonds 8.4% 10.0% 9.1% 5.1% 4.6% 0.9% 5.8% -7.6% 21.8% 7.6% 9.6% 7.2% 1.0% 8.5% -2.9%

S&P GSCI -31.9% 32.1% 20.7% 17.3% 25.6% -15.1% 32.7% -46.5% 13.5% 9.0% -1.2% 0.1% -1.2% -33.1% -32.9%

http://www.cboe.com/wilshire

Efficient Frontier by Wilshire at www.cboe.com/wilshire

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BXMD - CBOE S&P 500 30-Delta BuyWrite Index CLLZ - CBOE S&P 500 Zero-Cost Put Spread Collar BXM - CBOE S&P 500 BuyWrite Index PPUT - CBOE S&P 500 5% Put Protection Index PUT - CBOE S&P 500 PutWrite Index

In a three-decade analysis of the indexes above, the BXMD and PUT indexes had the strongest risk-adjusted returns of the equity-related investments in this study.

Exhibit 6

Past performance is not predictive of future returns. Sources: Bloomberg, CBOE, St. Louis Federal Reserve Bank and WilshireAssociates. Please read important disclosures on Slide 17 and at www.cboe.com/benchmarks. www.cboe.com/wilshire




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Excerpted from paper by Fund Evaluation Group. Evaluating Options for Enhanced Risk-Adjusted Returns: CBOE Russell 2000 Option Benchmark Suite and Case Studies on Fund Use of Options (2016)

2) Why have indexes that sell SPX index options (BXMD, PUT, & BXM) had higher returns than the PPUT that buys protective put options?

The volatility risk premium has rewarded sellers of index optionsExcerpted from paper by Wilshire -Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis (2016)

Both papers are available at www.cboe.com/benchmarks. See the last slide for important disclosures.

S&P 500 (SPX) options

Russell 2000 (RUT) options


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Volatility Risk Premium Since Mid-2016

Volatility indexes are not investable. The historic volatility numbers above reflect 20-trading-day historic volatility.

While many have asked why VIX Index recently has been lower than its long-term average, the SPX historic volatility averaged 8.2 since June 2016.

Historic volatility for the MSCI EAFE Index rose to 40 after Brexit vote, but has an avg. of 11.1 since June 2016.

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Some ask about option-writing strategies in periods where the VIX is lower than its long-term average.

For 3 periods beginning Jan. 31, 1994, BXMD and PUT all had higher Sharpe Ratios than the S&P 500 Index.

Analysis for periods beginning 31-Jan-1994. On that date the VIX Index closed at 10.63.

S&P 500BXM - Cboe S&P 500

BuyWrite IndexBXMD - Cboe S&P 500 30-

Delta BuyWrite Index PUT - Cboe S&P 500

PutWrite Index

1-Year Annualized Return 0.5% 4.4% 5.0% 7.3%Standard Deviation 10.4% 6.8% 8.7% 5.7%Sharpe Ratio -0.38 -0.01 0.07 0.48

3-Year Annualized Return 20.8% 14.3% 19.8% 13.9%Standard Deviation 10.0% 5.8% 8.1% 4.3%Sharpe Ratio 1.55 1.56 1.79 2.01


Total return (pre-tax) indices. Sources: Bloomberg, Zephyr, www.cboe.com/benchmarks.Past performance is not predictive of future returns.

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Analysis for periods beginning 30-Nov-2006. On that date the VIX Index closed at 10.91.




PutWrite Index


3-Year Annualized Return -5.8% -2.0% -1.6% 1.0%Standard Deviation 19.7% 15.6% 18.5% 15.6%Sharpe Ratio -0.40 -0.26 -0.20 -0.07

5-Year Annualized Return -0.2% 0.9% 2.8% 3.5%Standard Deviation 18.7% 14.7% 17.2% 15.0%Sharpe Ratio -0.08 -0.02 0.09 0.15

Total return (pre-tax) indices. Sources: Bloomberg, Zephyr, www.cboe.com/benchmarks.

Past performance is not predictive of future returns.

For the 3-yr. & 5-yr. periods beginning Nov. 30, 2006, BXM, BXMD and PUT all had higher Sharpe Ratios than the S&P 500 Index.

For the 3 periods beginning Apr. 29, 2011, BXM, BXMD and PUT both had lower standard deviations than the S&P 500 Index.

Analysis for periods beginning 29-Apr-2011. On that date the VIX Index closed at 14.75.




PutWrite Index




Total return (pre-tax) indices. Sources: Bloomberg, Zephyr, www.cboe.com/benchmarks.

Past performance is not predictive of future returns.

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4) Have put-writing indexes been risky with huge drawdowns?

Excerpted from 2016 paper by Prof. Oleg Bondarenko --

The S&P 500 had more severe drawdowns than the PUT & WPUT indices(which engage incash-securedput-writing)

Past performance is not predictive of future returns. Please read disclosures in the last slide.

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5) How have benchmarks that write puts once a week (WPUT & WPTR) performed vs. benchmarks that write puts once a month (PUT & PUTR)?

PUT had higher returns than WPUT.

WPUT had lower standard deviation than PUT and S&P 500.

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Rolling 1-Year Returns for PUT & WPUT

Returns in Recent Years2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (thru Oct.)

PUT 9.5% -26.8% 31.5% 9.0% 6.2% 8.1% 12.3% 6.4% 6.4% 7.8% 8.9%

WPUT 10.2% -15.2% 15.2% 6.9% 3.9% 11.5% 14.4% 0.2% 0.4% 7.7% 8.6% Total return (pre-tax) benchmark indices. Past performance is not predictive of future results.

Sources: Bloomberg and Cboe Options Market. www.cboe.com/benchmarks

PUT often had bigger upside and downside moves than WPUT

PUT had higher returns than WPUT in 6 of past 8 calendar years

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Year 2008 for WPUT and PUT Indices

In 2008 –• WPUT down 15%• PUT down 27%• S&P 500 down 37%

61.6% - gross premiums received by WPUT

41.9% - gross premiums received by PUT

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Year 2009 for WPUT and PUT Indices

In 2009 –• PUT rose 32%• S&P 500 rose 26%• WPUT rose 15%

53.1% - gross premiums received by WPUT

38.6% - gross premiums received by PUT

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Aggregate Gross Premiums for PUT and WPUT

Past performance is not predictive of future returns. Please read the last slide for disclosures.


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PUTR and WPTR Since 2006

For benchmarks that sell puts on Russell 2000 (RUT) - PUTR had higher returns than WPTR

PUTR had some bigger extreme upside and downside moves than WPTR

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Excerpted from paper by Fund Evaluation Group. Evaluating Options for Enhanced Risk-Adjusted Returns: CBOE Russell 2000 Option Benchmark Suite and Case Studies on Fund Use of Options (2016) (available at www.cboe.com/benchmarks). Past performance is not predictive of future returns. See the last slide for important disclosures.

Gross Premiums for BXR & WPTR Indices

WPTR generated higher aggregate gross premiums per year than the BXR Index


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6) Why have putwrite indexes that sell index puts (PUT and PUTR) had stronger

performance than buywrite indexes that sell index calls (BXM and BXR)?

Two papers address the issue - why were returns higher for PUT (sell puts) than for BXM (sell calls)?• AQR paper – “PutWrite versus BuyWrite: Yes, Put-Call Parity Holds Here

Too” (2017) at www.AQR.com• Cboe paper – “The BXM and PUT Conundrum” (2014) www.cboe.com/PUT


BXM 6.6% -28.7% 25.9% 5.9% 5.7% 5.2% 13.3% 5.6% 5.2% 7.1% 10.6%

PUT 9.5% -26.8% 31.5% 9.0% 6.2% 8.1% 12.3% 6.4% 6.4% 7.8% 8.9% Total return (pre-tax) benchmark indices. Past performance is not predictive of future results. Sources: Bloomberg and Cboe Options Market. www.cboe.com/benchmarks

Sharpe ratios since mid-1986 – PUT 0.69; BXM 0.53; S&P 500 0.47 (see Appendix 2).Past performance is not predictive of future returns.

PUT had higher returns than BXM since mid-1986

PUT had higher returns in 7 of last 8 full years

http://www.aqr.com/

http://www.cboe.com/PUT

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Indexes That Sell Russell 2000 Options


PUTR 16.1% -28.5% 34.3% 13.8% 6.1% 10.4% 12.0% 3.9% 4.9% 8.6% 7.1%

Russell 2000 -1.6% -33.8% 27.2% 26.9% -3.7% 15.7% 38.8% 4.9% -4.4% 21.3% 11.9%

BXR 5.8% -36.0% 28.5% 7.5% 6.8% 9.0% 14.5% 0.9% 4.6% 11.1% 6.5% Total return (pre-tax) benchmark indices. Past performance is not predictive of future results. Sources: Bloomberg and Cboe Options Market. www.cboe.com/benchmarks

For indexes that sell options on Russell 2000 (RUT), PUTR (sell puts) had higher returns than the BXR (sell calls)

PUTR had higher returns than BXR in 5 of last 8 years

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7) How does the performance of O-T-M buywrite benchmarks (BXY and BXMD) compare to the performance of A-T-M buywrite benchmark index (BXM)?


BXMD 6.2% -31.3% 32.1% 11.2% 7.3% 11.0% 19.1% 6.2% 4.0% 8.4% 13.2%BXY 6.1% -31.2% 32.1% 9.8% 7.2% 10.2% 20.8% 5.5% 2.8% 8.4% 15.8%S&P 500 5.5% -37.0% 26.5% 15.1% 2.5% 15.5% 32.4% 13.7% 1.4% 12.0% 16.9%BXM 6.6% -28.7% 25.9% 5.9% 5.7% 5.2% 13.3% 5.6% 5.2% 7.1% 10.6% Total return (pre-tax) benchmark indices. Past performance is not predictive of future results. Sources: Bloomberg and Cboe Options Market. www.cboe.com/benchmarks

Since mid-1988 BXMD and BXY had higher returns than the S&P 500 and BXM.

BXMD and BXY had higher returns than BXM in 7 of the last 8 years.

BXM had lower volatility than BXY, BXMD, and S&P 500.

Betas Since Mid-1986BXM 0.62BXMD 0.82

See Appendix 2Past performance is notPredictive of future returns

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Gross Premiums and Implied Volatility

Avg. monthly gross premium generated was 1.8% for BXM Index and 0.8% for BXMD Index.

Note the relationship between gross premiums (top chart) and VIX Index level.


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8) Have some VIX-based benchmark indexes had strong returns and/or shown potential as diversification tools over the past 11 years?

Higher Returns - The S&P inverse VIX futures index and VPD index in chart both had higher 11-year returns (and worse 2008 drawdowns) than the S&P 500 Index.

Diversification Potential – Both the VXTH Index (buys VIX options) and the S&P 500 VIX Mid-Term Futures Index (buys VIX futures) had better returns than the S&P 500 in 2008, but the S&P 500 had higher returns since 2008.

Returns in Recent Years2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (thru Nov.)

S&P 500 VIX Short Term Futures Daily Inverse Index -71.0% 116.0% 144.8% -45.4% 162.6% 108.1% -7.9% -15.8% 83.3% 151.7%VPD - Cboe VIX Premium Strategy Index -44.9% 47.3% 31.7% -8.8% 37.1% 13.2% 2.9% 6.6% 25.2% 13.4%S&P 500 -37.0% 26.5% 15.1% 2.5% 15.5% 32.4% 13.7% 1.4% 12.0% 20.5%VXTH - Cboe VIX Tail Hedge Index -19.3% 16.0% 21.1% 5.9% 3.6% 19.4% 33.6% 0.3% -16.5% -21.2%S&P 500 VIX Mid-term Futures Index TR 83.9% -23.6% -13.2% -7.6% -52.9% -43.8% -16.5% -14.2% -21.0% -43.7% Total return (pre-tax) benchmark indices. Past performance is not predictive of future results. Sources: Bloomberg and Cboe Options Market. www.cboe.com/benchmarks

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9) What are key metrics for comparing risk-adjusted returns of Cboe benchmark indices?



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11) How have Morningstar and pension consulting firms treated Cboe benchmark indices?

MORNINGSTAR In April 2016 Morningstar placed dozens of mutual funds in its new Option Writing category in its U.S Retail Category system. Morningstar’s Category Index for the new Option Writing category is the CBOE S&P 500 BuyWrite Index (BXM). Steve Sears in Barron’s Striking Price column on May 7, 2016 –

“ … THE OPTIONS INDUSTRY has taken a major step onto Main Street. Morningstar, which millions of individuals rely upon to evaluate mutual funds, has created a category for options-trading funds. The significance of this can’t be overstated. It indicates options have become part of the mainstream investment landscape, like growth mutual funds and index funds. … Morningstar’s recognition will probably incentivize asset managers to market new funds in the category. … “

STUDY WITH LIST OF 119 OPTIONS-BASED FUNDS. The 2015 study by Black & Szado provides lists with 119 funds (mutual funds, closed-end funds, and ETFs) that invest in options, and provides analyses of performance of the funds, the BXM, S&P 500, and other indexes.www.cboe.com/funds

http://www.cboe.com/funds

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Pension Consultants and Research Papers

Eight Research Papers

1. Cambridge Associates. Highlights from the Benefits of Selling Volatility (2011).

2. Aon Hewitt. Harvesting the Equity Insurance Risk Premium: Know Your Options (2014).

3. Hewitt EnnisKnupp. The CBOE S&P 500 BuyWrite Index (BXM) - A Review of Performance (2012).

4. Ennis Knupp & Associates. "Evaluating the Performance Characteristics of the CBOE S&P 500 PutWrite Index" (2008).

5. Russell Investments. Capturing the Volatility Premium through Call Overwriting. (2012).

6. Callan Associates. "An Historical Evaluation of the CBOE S&P 500 BuyWrite Index Strategy." (2006).

7. Pension Consulting Alliance. “Option-Writing Strategies in a Low-Volatility Framework” The Journal of Investing (2015).

8. Wilshire. “Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis” (Sept. 2016).

Most of the papers above focus on CBOE benchmark indexes and are at www.cboe.com/benchmarks

11) How has the news media recently treated Cboe’s benchmark indexes?

Wall Street Journal (Aug. 21, 2016)“Pensions Try a Fear Trade. Options strategy used by pension funds aims to work like a volatility dampener … Some pension funds are seeking to profit from others’ fear. The CBOE S&P 500 PutWrite Index, a benchmark for the strategy, … didn’t fall as sharply as the market during the selloff of early 2016, but has lagged behind the rallies. In 2008, during the financial crisis, the put-write strategy returned minus-27% compared with the S&P 500’s return of minus-37%. CBOE’s calculations of how the index would have performed before its 2007 creation estimate that annualized returns over the 30 years through this June were 10%, narrowly topping the S&P 500. … “

Pensions & Investments (Oct. 3, 2016)“Funds go exotic with put-write options to stem volatility … In its paper, Wilshire noted that the CBOE S&P 500 put-write index, with an annualized 10.1% return, outperformed the CBOE S&P 500 buy-write index's 8.9% and the S&P 500 stock index's 9.9% over 30 years ended Dec. 31. And for 2015 alone, the put-write index returned 6.4% vs. the buy-write index's 5.2% and the S&P 500's 1.4%.”

Institutional Investor (March 2017)“The Hedging Strategy That’s Cheaper Than Hedge Funds. … Two big pension funds are now employing a strategy called cash-secured put writing …”

Appendix 1 - Descriptions for Select CBOE Benchmark Indexes (1st page) www.cboe.com/benchmarks

Ticker CBOE Benchmark Index

1 BFLY

BFLY - CBOE S&P 500 Iron Butterfly Index - tracks 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 money market account invested in one-month Treasury bills, which is rebalanced on the option roll day and is designed to limit the downside return of the index

2 BXM BXM - CBOE S&P 500 Buy Write Index - tracks the performance of a hypothetical option trading strategy that purchases stocks in the S&P 500 index, and each month sell at-the-money (ATM) SPX index call options

3 BXMC

BXMC - CBOE S&P 500 Conditional BuyWrite Index - covered call 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

4 BXMD BXMD - CBOE S&P 500 30-Delta BuyWrite Index is designed to track the performance of a hypothetical covered call 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.

5 BXMW BXMW - CBOE S&P 500 Multi-Week BuyWrite Index - tracks the performance of a hypothetical 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.

6 BXRC

BXRC - CBOE Russell 2000 Conditional BuyWrite Index is designed to track the performance of a hypothetical covered call strategy that holds a long position indexed to the Russell 2000 Index and sells a monthly at-the-money (ATM) Russell 2000 Index call option. The written number of ATM call options will be either ½ unit or one unit and will be determined by the level of the CBOE Russell Volatility Index (RVX Index) when the call option is written on the Roll Date. The BXRC Index rolls on a monthly basis, typically every third Friday of the month

7 BXRDBXRD - CBOE Russell 2000 30-Delta BuyWrite Index is designed to track the performance of a hypothetical covered call strategy that holds a long position indexed to the Russell 2000 Index and sells a monthly out of the money (OTM) Russell 2000 Index 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 BXRD Index rolls on a monthly basis, typically every third Friday of the month.

8 BXY BXY - CBOE S&P 500 2% OTM Buy Write Index - purchase stocks in the S&P 500 index, and each month sell SPX index call options that are 2% out-of-the-money

Appendix 1 - Descriptions for Select CBOE Benchmark Indexes (2nd page) www.cboe.com/benchmarks

Ticker CBOE Benchmark Index9 CLL CLL - CBOE S&P 500 95-110 Collar Index - purchase stocks in the S&P 500 index, and each month sell SPX call

options at 110% of the index value, and each quarter purchase SPX put options at 95% of the index value

10 CLLR

CLLR - CBOE Russell 2000 Zero-Cost Put Spread Collar Index is designed to track the performance of a hypothetical option trading strategy that 1) holds a long position indexed to the Russell 2000 Index; 2) on a monthly basis buys a 2.5 percent to 5 percent Russell 2000 Index put option spread; and 3) sells a monthly out-of-the-money (OTM) Russell 2000 call option to cover the cost of the put spread. The CLLR Index rolls on a monthly basis, typically every third Friday of the month.

11 CLLZ CLLZ - CBOE S&P 500 Zero-Cost Put Spread Collar Index - track the performance of a hypothetical option trading 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 cover the cost of the put spread

12 CMBO

CMBO - CBOE S&P 500 Covered Combo Index - track 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 SPX put position is collateralized by a money market account invested in one-month Treasury bills and the 2% OTM SPX call is collateralized by the long S&P 500 Index position.

13 CNDR

CNDR - CBOE S&P 500 Iron Condor Index - 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 ≈ - 0.2) and a rolling monthly out-of-the-money (OTM) SPX call option (delta ≈ 0.2); 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 money market account invested in one-month Treasury bills, which is rebalanced on option roll days and is designed to limit the downside return of the index.

14 LOVOLLOVOL - CBOE Low Volatility Index - is a 40% / 60% blend of the popular CBOE S&P 500 BuyWrite Index (BXM) and CBOE VIX Tail Hedge Index (VXTH); the portfolio overlays long VIX calls and short S&P 500 calls over an investment in S&P 500 stocks

15 PPUT PPUT - CBOE S&P 500 5% Put Protection Index - 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

16 PUT PUT - CBOE S&P 500 PutWrite Index - purchase Treasury bills and sell cash-secured at-the-money put options on the S&P 500 index

Appendix 1 - Descriptions for Select CBOE Benchmark Indexes (3rd page) www.cboe.com/benchmarks

Ticker CBOE Benchmark Index

17 PUTRPUTR - 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.

18 RXMRXM - CBOE S&P 500 Risk Reversal Index - is a benchmark index designed to track the performance of a hypothetical risk reversal strategy that: (1) buys a rolling out-of-the-money (delta ≈ 0.25) monthly SPX Call option; (2) sells a rolling out-of-the-money (delta ≈ - 0.25) monthly SPX Put option; and (3) holds a rolling money market account invested in one-month Treasury bills to cover the liability from the short SPX Put option position.

19 SMILESMILE - CBOE SMILE Index - combines a short one-month SPX 25 delta put with a one month 25 delta call. The call is held long or short depending on the shape of the smile, as summarized by the ratio of prices of the put and call. The option position is collateralized by an investment in one-month Treasury bills.

20 VPD VPD - CBOE VIX Premium Strategy Index - overlays a sequence of short one-month VIX futures on a money market account; the short VIX futures positions are held until expiration and new VIX futures are then sold

21 VPN VPN - CBOE Capped VIX Premium Strategy Index - tracks the performance of a strategy that systematically sells 1-month VIX futures, capped by the purchase of a VIX call option; the short VIX futures position is capped with long VIX calls struck about 25 points higher than the VIX futures price

22 VSTG VSTG - CBOE VIX Strangle Index - a premium capture index that overlays short 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.

23 VXTH VXTH - CBOE VIX Tail Hedge Index - buys and holds S&P 500 stocks, and also often buys 30-delta call options on the CBOE Volatility Index® (VIX®).

24 WPTRWPTR - CBOE Russell 2000 One-Week PutWrite Index is designed to track the performance of a hypothetical strategy that sells an ATM Russell 2000 Index put option on a weekly basis. The maturity of the written Russell 2000 put option is one week to expiry. The written Russell 2000 put option is collateralized by a money market account invested in one-month Treasury bills. The WPTR Index rolls on a weekly basis, typically every Friday.

25 WPUT WPUT - CBOE S&P 500 One-Week PutWrite Index - track the performance of a hypothetical 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 collateralized by a money market account invested in one-month Treasury bills.

Appendix 2 – More Metrics Since Mid-1986 (July 1986 – Nov. 2017)

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Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person mustreceive a copy of Characteristics and Risks of Standardized Options (the “ODD”). The ODD and supportingdocumentation for any claims, comparisons, recommendations, statistics or other technical data in thesematerials are available by calling 1-888-OPTIONS, or contacting Cboe at www.Cboe.com/Contact. The informationin these materials is provided solely for general education and information purposes and therefore should not be consideredcomplete, precise, or current. Many of the matters discussed are subject to detailed rules, regulations, and statutory provisionswhich should be referred to for additional detail and are subject to changes that may not be reflected in these materials. Nostatement within this material should be construed as a recommendation to buy or sell a security or to provide investment advice.The Cboe S&P 500 BuyWrite Index (BXMSM), Cboe S&P 500 2% OTM BuyWrite Index (BXYSM), Cboe DJIA BuyWrite Index (BXDSM) andCboe Russell 2000 BuyWrite Index (BXRSM) (the “Indexes”) are designed to represent proposed hypothetical buy-write strategies.Like many passive benchmarks, the Indexes do not take into account significant factors such as transaction costs and taxes.Transaction costs and taxes for a buy-write strategy could be significantly higher than transaction costs for a passive strategy ofbuying-and-holding stocks. Investors attempting to replicate the Indexes should discuss with their brokers possible timing andliquidity issues. Past performance does not guarantee future results. These materials contain comparisons, assertions, andconclusions regarding the performance of indexes based on backtesting, i.e., calculations of how the indexes might have performedin the past if they had existed. Backtested performance information is purely hypothetical and is provided in this document solelyfor informational purposes. The methodology of the Indexes is owned by Cboe, Incorporated (Cboe) may be covered by one or morepatents or pending patent applications. S&P®, and S&P 500® are registered trademarks of Standard & Poor's Financial Services, LLCand are licensed for use by Cboe, Incorporated (Cboe) and Cboe Futures Exchange, LLC (CFE). Cboe's financial products based onS&P indices are not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation regarding the advisability ofinvesting in such products. Cboe Volatility Index®, VIX®, Cboe® and Chicago Board Options Exchange® are registered trademarks andBXM, BXD, BXN and BXY are servicemarks of CboeCboe® and Chicago Board Options Exchange® are registered trademarks and CboeOptions Institute is a service mark of Chicago Board Options Exchange, Incorporated (Cboe). All other trademarks and service marksare the property of their respective owners. © 2017 Cboe Exchange, Inc. All rights reserved.

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options- and volatility-based strategy benchmark indexes · by matt moran, vp, cboe. cboe rmc asia....

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