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Hong Kong Options Haslett Moran 8 30 08

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Information about Hong Kong Options Haslett Moran 8 30 08
Finance

Published on November 12, 2008

Author: budhaslett

Source: slideshare.net

Description

A half-day seminar presented to the Hong Kong Society of Financial Analysts by Bud Haslett and Matt Moran
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Using Options for Risk Management and to Enhance Income and Risk-adjusted Returns For the Hong Kong Society of Financial Analysts Saturday, 30th August 2008 9:30 a.m. – 12:00 noon HKUST Business School Central 15th Floor, The Hong Kong Club Building 3A Chater Road, Central, Hong Kong Presentations by: and Bud Haslett, CFA, FRM Matt Moran, JD Chief Executive Officer Vice President Miller Tabak Capital Management Chicago Board Options Exchange® New York Chicago

Topics to Be Covered 1. Historical Price Changes 2. Worldwide Derivatives Markets – OTC and Exchange-Listed 3. Detailed Analysis of Options, Including Inputs to Pricing, and Evaluation of Risk Determinants (the quot;Greeksquot;) 4. Strategies to Lower Portfolio Volatility – Protective Puts, BuyWrites, Collars, and others 5. Benchmark Indexes for Strategies to Lower Portfolio Volatility – BXM, BXY, PUT, etc. 6. Benchmark Indexes for Volatility-based Strategies – VIX, VPD, OVX, etc. 7. Volatility-based Strategies 8. Conclusion Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 2

1. Historical Price Changes Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 3

One-Year Change in Select Equity Prices (July 31, 2007 - July 31, 2008) How can diversification and risk management help investors? Daily Closing Prices, re-scaled to 100% on 130% 120% 110% 100% 90% 0% Southwest Air Down 11% S&P 500 TR July 31, 2007 80% 70% 60% 50% Down 60% Citigroup 40% Down 63% American Air 30% Down 66% GM 20% 10% Down 81% United Air 0% 31-Jul-07 31-Oct-07 31-Jan-08 30-Apr-08 31-Jul-08 % Change in stock prices (without reinvested dividends) and in Russell 3000 total return index. Sources: CBOE and Bloomberg. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 4

Financial Times July 25, 2008 Southwest Airlines' Fuel Hedging Boosts Profits “… Southwest Airlines reported a higher quarterly profit, as hedges locked in most of the low-cost US carrier's jet-fuel expenses well below market prices. Derivatives contracts pinned 80 per cent of Southwest's fuel bill at the average equivalent price of $61 a barrel for crude oil, a commodity whose surge has overwhelmed US airlines and forced them to make unprecedented service cuts, slash jobs and retire older aircraft. … Alaska Air Group, another US carrier that has mimicked Southwest's fuel strategy, also posted a quarterly profit that exceeded analysts' expectations. Favourable settlements from Southwest's fuel hedges added $511m to the airline's quarterly results. Revenue rose 11 per cent to $2.87bn. Southwest's derivatives through 2012 are valued at about $4.3bn, and cover 80 per cent of its fuel bill for the second half of 2008 and 70 per cent of next year's expected costs. …” Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 5

Exchange-Traded Funds (ETFs) July 2008 CBOE Prices Since August 2005 Options Avg. 200 Symbol ETF Daily Volume. FXE CurrencyShares Euro FXE Trust 795 150 SPY S&P Depositary Receipts SPY (SPDRs) 443,221 M o n th -en d P rices USO USO United States Oil Fund 20,638 100 TLT iShares Lehman 20+Year TLT Treasury Bond Fd 2,916 50 GLD GLD SPDR Gold Trust 30,925 iShares MSCI Emerging EEM EEM Markets Index 43,155 0 Au g -05 Au g -06 Au g -07 (Aug. 2005 - July 2008) Source: Bloomberg Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 6

Select Indexes Since Dec. 1998 350% 300% Re-scaled month-end prices 250% MSCI Hong Kong 200% MSCI World US$ 150% 100% S&P 500 50% 0% Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 (Dec. 1998 - June 2008) All indexes are total return indexes, re-scaled to 100% as of Dec. 1998. Country indexes are in local currencies. Sources: CBOE and Bloomberg Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 7

One-Year Change in Select Indexes (July 31, 2007 - July 31, 2008) How can diversification and risk management help investors? Daily Closing Prices, re-scaled to 100% on 130% 120% 110% July 23, 2007 100% Down 5% MSCI Hong Kong 90% Down 11% MSCI World 80% 70% 31-Jul-07 31-Oct-07 31-Jan-08 30-Apr-08 31-Jul-08 All indexes are net total return indexes in local currencies, except that the MSCI World Index is in US $. Sources: CBOE and Bloomberg. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 8

One-Year Change in Select Indexes How can diversification and risk management help investors? Daily Closing Prices, re-scaled to 100% 110% Up 4% PUT on July 23, 2007 100% Down 1% BXM 90% Down 11% S&P 500 (TR) 80% 31-Jul-07 30-Sep-07 30-Nov-07 31-Jan-08 31-Mar-08 31-May-08 31-Jul-08 (July 31, 2007 - July 31, 2008) Sources: CBOE and Bloomberg. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 9

One-Year Change in Select Index Prices CBOE Lehman 5-Month Constant Maturity VIX Futures Index (VWX) CBOE VIX Premium Strategy Index (VPD) CBOE Capped VIX Premium Strategy Index (VPN) Daily Closing Prices, re-scaled to 100% 140% 130% 120% on July 23, 2007 Up 14% VWX 110% Up 6% VPD 100% Up 3% VPN 90% Down 11% S&P 500 (TR) 80% 70% 31-Jul-07 30-Sep-07 30-Nov-07 31-Jan-08 31-Mar-08 31-May-08 31-Jul-08 (July 31, 2007 - July 31, 2008) Sources: CBOE and Bloomberg. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 10

2. Worldwide Derivatives Markets – OTC and Exchange- Listed Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 11

Worldwide Derivatives $677 Trillion in Worldwide Derivatives $700,000 $600,000 O-T-C Derivatives $500,000 $400,000 Exchange-listed $300,000 Options $200,000 Exchange-listed $100,000 Futures $0 Dec.2000 Dec.2001 Dec.2002 Dec.2003 Dec.2004 Dec.2005 Dec.2006 Dec.2007 Notional Principal in $US Billions - Amounts Outstanding Source: BIS Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 12

O-T-C Derivatives $596 Trillion Notional in Dec. 2007 $600,000 Unallocated Credit default swaps $400,000 Commodity contracts Equity-linked contracts $200,000 Interest rate contracts $0 Foreign exchange Dec.2000 Dec.2001 Dec.2002 Dec.2003 Dec.2004 Dec.2005 Dec.2006 Dec.2007 contracts Notional principal in US $ Billions – amounts outstanding. Source: BIS Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 13

O-T-C Equity Forwards & Swaps O-T-C Equity Forwards & Swaps $2.2 Trillion Notional $3,000 Asian $2,000 European US $1,000 Latin American Other $0 D e c .2 0 0 0 D e c .2 0 0 1 D e c .2 0 0 2 D e c .2 0 0 3 D e c .2 0 0 4 D e c .2 0 0 5 D e c .2 0 0 6 D e c .2 0 0 7 Notional principal in US $ Billions – amounts outstanding. Source: BIS Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 14

O-T-C Equity Options O-T-C Equity Options $7,000 $6.3 Trillion Notional $6,000 $5,000 Asian $4,000 European $3,000 US $2,000 Latin American $1,000 Other $0 Dec.2000 Dec.2001 Dec.2002 Dec.2003 Dec.2004 Dec.2005 Dec.2006 Dec.2007 Notional principal in US $ Billions – amounts outstanding. Source: BIS Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 15

Exchange-listed Equity Index Futures Exchange-listed Equity Index Futures $1.1 Trillion Notional $1,200 Asia and Pacific Europe $600 North America Other Markets $0 Dec.2000 Dec.2001 Dec.2002 Dec.2003 Dec.2004 Dec.2005 Dec.2006 Dec.2007 Notional principal in US $ Billions – amounts outstanding. Source: BIS Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 16

Exchange-listed Equity Index Options Exchange-listed Equity Index Options $8.1 Trillion Notional $9,000 Asia and Pacific $6,000 Europe $3,000 North America $0 Other Markets D ec .2000 D ec .2001 D ec .2002 D ec .2003 D ec .2004 D ec .2005 D ec .2006 D ec .2007 Notional principal in US $ Billions – amounts outstanding. Source: BIS Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 17

Leading Futures and Options Exchanges January – May 2008 CME Group 12,412,577 Eurex 9,119,227 Korea Exchange 9,096,360 LIFFE 4,531,367 CBOE 4,369,784 ISE 4,075,541 PHLX 2,061,909 Natl SE of India 1,756,478 NYMEX 1,748,633 Avg. Daily Volume - Preliminary Estimates Based on 104 Trading Days. Sources: CBOE and FIA. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 18

Select Options & Futures Kospi 200 Options (Korea Exchange) 8,787,780 Eurodollar Futures (CME) 2,981,842 E-mini S&P 500 Index (CME) 2,291,626 DJ Euro Stoxx 50 Index (Eurex) 1,646,446 5 Year Treasury Note (CME) 797,215 S&P 500 Index Options (CBOE) 643,173 January - May 2008 - Avg. Daily Volume - Preliminary Estimates. Sources: CBOE and FIA. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 19

Growth in Volume in Options and Futures on U.S. Exchanges 28.3 million avg. daily volume in Jan.-May 2008 30,000,000 U.S. Options on Securities (SEC) U.S. Options on Futures (CFTC) 20,000,000 U.S. Futures (CFTC) 10,000,000 0 2000 2001 2002 2003 2004 2005 2006 2007 Jan-May 2008 Sources: FIA and CBOE Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 20

Growth in CBOE Options Volume 6,000,000 Avg. Daily Volume at CBOE 4,462,075 5,000,000 3,762,836 4,000,000 2,688,189 3,000,000 1,858,132 1,432,884 2,000,000 1,126,772 1,061,970 1,000,000 0 2002 2003 2004 2005 2006 2007 JanJun08 SEC-regulated listed options are cleared and guaranteed by the AAA-rated Options Clearing Corporation. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 21

Leading CBOE Index and ETF Options S&P 500 (SPX) 627,236 SPDRs (SPY) 326,248 iShares Russell 2000 (IWM) 309,215 PowerShares Nasdaq-100 (QQQQ) 268,858 CBOE Volatility Index (VIX) 99,561 Russell 2000 (RUT) 58,954 S&P 100 (OEX) 52,240 Dow Diamonds (DIA) 40,896 Dow (DJX) 26,066 Nasdaq-100 (NDX) 25,595 Average Daily Volume in January-June, 2008. Source: CBOE. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 22

Select O-T-C Derivatives – Credit Default Swaps and Equity-linked Derivatives $58 Trillion in Credit Default Swaps $80,000 $70,000 $60,000 $50,000 Credit Default Swaps $40,000 (O-T-C) $30,000 Equity-linked O-T-C $20,000 Derivatives $10,000 $0 Dec.2000 Dec.2001 Dec.2002 Dec.2003 Dec.2004 Dec.2005 Dec.2006 Dec.2007 Notional Principal in $US Billions - Amounts Outstanding Source: BIS Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 23

Credit Event Binary Options (CEBOs) Credit Event Binary Options (CEBOs) are the CBOE’s translation of credit default swaps (CDS) to a regulated and centralized marketplace CEBOs pay a fixed amount if a credit event is confirmed in a reference entity. Payment is made at the time of the credit event CEBOs expire worthless if no credit event is confirmed before expiration Contract’s value can fluctuate significantly as perceptions of credit quality change ‘Credit Event’: Bankruptcy Failure to pay Contract specifications inspired by language from the 2003 ISDA credit derivatives definitions Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 24

3. Detailed Analysis of Options, Including Inputs to Pricing, and Evaluation of Risk Determinants (the quot;Greeksquot;) Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 25

Exchange Listed Equity Options Calls – Right to buy stock at certain price for certain period Puts – Right to sell stock at certain price for certain period Usually represents 100 shares Limited life – usually expires after third Friday Option Info – 200 DD Jan 50 calls for 1.55 Number of contracts Underlying Security Expiration Date Strike price Call / Put Premium One or more can be combined with a stock Two or more can be combined in a spread Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 26

Option Terms to Know Premium – price paid for the option ($1.55 times 20,000 shares = $31,000) Intrinsic Value – Parity value of option Time Premium – Premium minus parity In-the-money (ITM)– option with parity value Out-of-the-money (OTM)– option with only time premium Historical Volatility – past movements Implied Volatility – anticipated movements in the future Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 27

Inputs to Option Pricing Increase in: Calls Puts Stock Price +(direct) -(inverse) Interest Rates +(direct) -(inverse) Strike Price -(inverse) +(direct) Dividends -(inverse) +(direct) Time to Expiration* +(direct) +(direct) Volatility +(direct) +(direct) * For all scenarios except deep in-the-money European style puts Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 28

Inputs to Option Pricing Decrease in: Calls Puts Stock Price -(direct) +(inverse) Interest Rates -(direct) +(inverse) Strike Price +(inverse) -(direct) Dividends +(inverse) -(direct) Time to Expiration* -(direct) -(direct) Volatility -(direct) -(direct) * For all scenarios except deep in-the-money European style puts Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 29

Foundation for Option Analysis Review of the “Greeks” Delta – change in value based on stock Gamma – change in delta based on stock Theta – change in value based on time Vega – change in value based on volatility Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 30

Foundation for Option Analysis Delta – price movement in the option based on a small movement in the stock Commonly called the Hedge Ratio Similar to a bond’s Duration Calls positive delta - Puts negative delta Delta ranges from 0 to 100 (.00 to 1.00) At-the-money has around a 50 delta Also dependent upon time, volatility, rates THINK OF DELTA AS PERCENTAGE CHANCE THE OPTION WILL FINISH IN-THE-MONEY Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 31

How Delta Changes – 118 Days Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 32

How Delta Changes – 15 Days Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 33

Foundation for Option Analysis Gamma – change in option’s delta based upon movement in the stock The Delta of the Delta Similar to a bond’s convexity Highest before expiration for at-the-money Lower away from the strike price Lower more time until expiration Gamma tied to time decay and volatility Long an option (Put or Call) = Long Gamma Short an option (Put or Call) = Short Gamma Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 34

Foundation for Option Analysis Theta – time decay in the option Options are wasting assets Gradually lose their time premium Long options = negative decay Short options = positive decay Vega – change in option’s price based on change in volatility Long options = Long Vega Short Option = Short Vega Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 35

Theta – 118 to 15 Days Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 36

Vega – 21 to 41 Volatility Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 37

What is the Key to Options? Understanding… All of these factors happen at the same time Delta Theta Gamma ixzt Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 38

Options Provide an Effective Way to: Take risk-modified and leveraged directional exposures Provide downside protection Enhance Returns Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 39

Directional Exposures - Price May be as simple as buying calls or puts Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 40

Directional Exposures - Price Or more sophisticated like using spreads Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 41

Directional Exposures Or contain strategies with calls and puts Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 42

4. Strategies to Lower Portfolio Volatility – Protective Puts, BuyWrites, Collars, and Collateralized Short Puts Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 43

Downside Protection – Many Types 1. Protective Put 2. Collar 3. Bear Put Spread* 4. Bear Call Spread* 5. Combination Bear Spread* 6. Put Spread Collar* 7. VIX Call Options* * Limited Downside Protection Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 44

Downside Protection The most popular methods Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 45

Have We Seen These Before? Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 46

Downside Protection Bear Put Spread – Pay for (Debit) Bear Call Spread – Receive (Credit) Combined into a low cost bearish position Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 47

Downside Protection - Hybrids Put Spread Collar Add sale of OTM put to collar Use proceeds of sale to “buy-up” strike price of long put or short call VIX Call Purchase Negative correlation with equity prices provides hedging value Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 48

Enhancing Returns Covered Call the most popular Appears easy on the surface Effective adjustment strategy is critical Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 49

5. Benchmark Indexes for Strategies to Lower Portfolio Volatility – BXM, BXY, PUT, etc. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 50

Key Performance Benchmark Indexes Index Ticker Introduced Data beginning Website CBOE S&P 2002 500 BuyWrite BXMSM June 30, 1986 www.cboe.com/BXM 2006 CBOE S&P 500 2% OTM BXYSM June 1, 1988 www.cboe.com/BXY BuyWrite Russell 2006 CBOE 2000 BuyWrite BXRSM Dec. 29, 2000 www.cboe.com/BXR CBOE DJIA 2005 BuyWrite BXDSM Oct. 16, 1997 www.cboe.com/BXD CBOE 2005 NASDAQ-100 BXNSM Dec. 30, 1994 www.cboe.com/BXN BuyWrite 2007 CBOE S&P 500 PutWrite PUT June 1, 1988 www.cboe.com/PUT Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 51

CBOE S&P 500 BuyWrite Index (BXM) Benchmark for strategy -- buy portfolio of S&P 500 stocks write (sell) cash-settled S&P 500 Index options every 3rd Friday for income Announced in 2002 Data history back to June 30, 1986 “Innovative Index of the Year” in 2004 More than $30 billion in buywrite funds www.cboe.com/BXM Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 52

CBOE S&P 500 PutWrite Index (PUT) Benchmark index, announced in June 2007, with price history back to June 1988. CBOE is publishing daily closing price data. Bloomberg ticker is PUT [Index] PUT strategy is designed to sell a sequence of one- month, at-the-money, S&P 500 Index puts and invest cash at one- and three-month Treasury Bill rates. PUT won Innovative Index of the Year Award at Super Bowl of Indexing www.cboe.com/PUT Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 53

Indexes Since June 1986 $11 Month-end prices for total return indexes, re- $10 $8.71 BXM $9 $8.43 S&P 500 scaled to $1 on June 30, 1986 $8 $7 $6 $5.98 - MSCI $5 World (in $) $4 $3 $2 $1 $- 30-Jun-86 30-Jun-93 06/30/2000 29-Jun-07 (June 30, 1986 - July 31, 2008) Sources: CBOE and Bloomberg Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 54

BXY, BXM, PUT and “Traditional” Indexes Total Return Indexes (June 1988* – July 31, 2008) $1,200 Month-end prices (scaled so that all = $100 PUT PutWrite $979 $1,000 on inception date of June 1, 1988) BXY OTM BW $919 $800 BXM $803 S&P 500 $743 $600 30-yr TBonds $484 $400 $200 3-m o.T-Bills $244 $0 Jun-88 Jun-93 Jun-98 Jun-03 Jun-08 * June 1988 is the first month for daily prices for the SPTR, BXY, and PUT indexes. Sources: CBOE & Bloomberg. The BuyWrite Indexes are designed to represent hypothetical buy-write strategies. Like many passive indexes, the BuyWrite Indexes do not take into account significant factors such as transaction costs and taxes and, because of factors such as these, many or most investors should be expected to underperform passive indexes. T-Bills and T-Bonds are represented by Citigroup indexes. See Risk Disclosure at www.cboe.com/BXM for more information. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 55

Returns and Volatility PUT – CBOE S&P 500 PutWrite Index (1 June 1988 – 30 June 2008) BXM – CBOE S&P 500 BuyWrite Index BXY – CBOE S&P 500 2% OTM BuyWrite Index 15% PUT BXY Annualized Returns S&P 500 10% BXM Russell 2000 MSCI World (in US$) T-bond 30-yr. 5% T-note 5-yr. T-bill 3-mo. 0% 0% 5% 10% 15% 20% Standard Deviation of Monthly Returns Sources: CBOE and Bloomberg. The figures above represent total return indexes; Citigroup indexes are used for the fixed income numbers. Time period starts in June 1988 because that is the 1st month for the S&P 500 (TR) & PUT index daily prices. Please see risk disclosures. Past performance is not a guarantee of future returns. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 56

Returns & Standard Deviation For periods ending July 31, 2008 CBOE CBOE CBOE MSCI Citigroup S&P 500 S&P 500 S&P 500 World 30-yr BuyWrite 2% OTM PutWrite S&P 500 Russell Index (TR) Treasury Index BuyWrite Index (TR) 2000 (TR) Net US$ Index BXM BXY PUT SPTR One-Year Annualized Return -1.2% -4.2% 3.5% -11.1% -6.2% -10.9% 9.1% Three-Year Annualized Return 4.5% 4.6% 7.4% 2.9% 3.1% 6.8% 3.1% Five-Year Annualized Return 6.9% 7.8% 9.4% 7.0% 9.9% 11.0% 6.6% Ten-Year Annualized Return 5.9% 5.5% 7.7% 2.9% 6.9% 4.0% 5.7% Annualized Return Since 1-Jun-88 10.9% 11.6% 12.0% 10.5% 9.9% 7.4% 8.1% Annualized Return Since 30-Jun-86 10.3% n/a n/a 10.1% 8.9% 8.4% 7.0% One-Year Standard Deviation 10.3% 11.7% 9.5% 13.7% 16.3% 14.8% 8.8% Three-Year Standard Deviation 6.9% 8.3% 6.5% 10.1% 13.7% 10.8% 9.4% Five-Year Standard Deviation 6.3% 7.9% 5.8% 9.5% 14.3% 10.1% 9.6% Ten-Year Standard Deviation 11.0% 12.6% 10.3% 15.0% 19.9% 14.5% 10.7% Standard Deviation Since 1-Jun-88 9.2% 11.0% 8.3% 13.7% 17.6% 13.9% 10.1% Standard Deviation Since 30-Jun-86 10.2% n/a n/a 14.9% 18.8% 14.4% 10.3% Sharpe Ratio* Since 1-Jun-88 0.69 0.65 0.90 0.44 0.31 0.21 0.36 Sources: CBOE and Bloomberg. *Please see BXM paper by Ibbotson at www.cboe.com/BXM for a discussion about caveats and use of Sharpe Ratio. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 57

Source of Returns- Sell “Rich” Options From: Paper by Goldman Sachs. quot;Finding Alpha via Covered Index Writing,quot; Financial Analysts Journal. (September/October 2006). Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 58

Gross Monthly Income from Options Premiums Avg. premium received was 1.6% since June 1988. BXM Index - Monthly Premiums Received as a % of the Underlying Average was about 1.67% per month 5% 4% 3% 2% 1% 0% (June 1986 - June 2008). Source: CBOE. Caution: Please note that the above amounts do not reflect the net amount received, as the buywrite strategy’s stock position does have truncated upside potential. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 59

Recent Select Monthly Statistics Month-end As a % of Price Underlying Monthly Returns BXM Monthly CBOE CBOE S&P S&P 500 CBOE Premium S&P 500 500 PutWrite Total Volatility Index Received BuyWrite Index Return VIX BXM PUT SPTR Apr-07 14.22 1.1% 0.7% 1.1% 4.4% May-07 13.05 1.3% 2.3% 1.9% 3.5% Jun-07 16.23 1.5% -0.1% -0.2% -1.7% Jul-07 23.52 1.5% -2.1% -1.3% -3.1% Aug-07 23.38 3.7% 1.1% 2.0% 1.5% Sep-07 18.00 1.9% 1.4% 1.7% 3.7% Oct-07 18.53 2.1% 2.4% 2.8% 1.6% Nov-07 22.87 3.3% -1.9% -1.1% -4.2% Dec-07 22.50 2.0% 1.8% 1.2% -0.7% Jan-08 26.20 2.4% -5.9% -5.4% -6.0% Feb-08 26.54 2.8% 0.9% 1.7% -3.2% Mar-08 25.61 2.7% 1.7% 1.2% -0.4% Apr-08 20.79 2.0% 2.4% 2.3% 4.9% Sources: CBOE and Bloomberg. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 60

New CBOE Developments in 2008 – - Extended BXM price history back to June 30, 1986 - Plan to introduce a 95-110 collar index with ticker “CLL” Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures. This is meant to provide general information; it is not to provide investment advice. 61

Studies on BuyWrites Fund Evaluation Group. Study of BXD and VXD Indexes (

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