Posted: July 30, 2015 | by: Thomas F. McKeon, CFA
Benchmarks are designed to highlight the long-term utility of options as return-enhancing and risk management tools.
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Yesterday, the CBOE introduced ten new options-based benchmark indexes. This extends their existing suite of benchmarks significantly and will give investors more flexibility in adding exposures to their asset mix that enhance returns, manage risk and deliver superior risk-adjusted returns. At Clothier Springs Capital Managament, we call that robust combination of portfolio characteristics: Structural Alpha. Since building strategies that use options as a hedge and provide those superior risk-adjusted returns is our bread and butter, we recently applied for a Federal Trademark for the term: structurALPHA, combining the two words.
We believe options are very useful tools for enhancing returns and managing risk, especially when used strategically, and when the natural decay of option time premium is captured. The CBOE is wise to create these benchmarks because until there is a benchmark beta to track, there is only a trading strategy, with an unknown beta and unknown expected return.
With almost thirty years of daily benchmark returns to examine and track, the CBOE has created both strategy beta and methodologies that portfolio managers and investors can cleave to, with both average return and risk data. In doing that, the CBOE has elevated mere options strategies into investment strategies. Now portfolios and products can be built to track, or even outperform them.
Drop us a line if you would like to learn more about how these simple and effective strategies--packaged in our low-cost, liquid and transparent separate account wrapper--can help you meet your investment objectives with greater certainty and less risk.