New Studies on Funds’ Use of Options for Managing Volatility

New, first-ever studies on use of options by more than 80 Investment Company funds were published in 2015, and results of the studies will be presented. Funds use options with the goals of managing portfolio risk, increasing income, and enhancing long-term risk-adjusted returns. This presentation discusses a number of risk-management strategies and related benchmark indices, including the protective put, the buy-write, the collateralized put-write, the protective collar, and the use of futures and options on the CBOE Volatility Index (VIX) that measures implied volatility. Twenty-five years of historical data show that certain options-based benchmark indices have generated attractive risk-adjusted returns, with stock-like returns and bond-like volatility. A key source of return for options writers has been a persistence of “overpricing” for index options.

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