Russell 2000 Index Benchmark Indexes

CBOE Benchmarks Track Investment Straegies

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On Monday, Nov 23, 2015 the Chicago Board Options Exchange (CBOE) began tracking five brand new Benchmark Indexes, based on the Russell 2000 Index. Each follows the performance of a specific option strategy that can be used to manage risk when investing in the stock market. The strategies are not new, but tracking the use of these strategies tied to the Russell Index (RUT) is. 

An article by Rick Rosenthal describes these indexes in detail.

This article presents the essential information regarding those Benchmark Indexes.

1. CBOE Russell 2000 PutWrite Index (PUTR)

The CBOE Russell 2000 PutWrite Index is designed to track the performance of a hypothetical strategy that sells a monthly (naked put) at-the-money (ATM) Russell 2000 Index put option. The written option is collateralized with cash in a money market account that invests in one-month Treasury bills.  The PUTR Index rolls the position into one that expires the following 3rd Friday. That roll occurs typically every third Friday of the month.

2. CBOE Russell 2000 Zero-Cost Put Spread Collar Index (CLLR)

The 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% – 5% 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.

3. CBOE Russell 2000 30-Delta BuyWrite Index (BXRD)

The 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.

4. CBOE Russell 2000 Conditional BuyWrite Index (BXRC)

The 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 1 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.

This is more sophisticated than simply writing covered calls and is not recommended for less experienced traders.

5. CBOE Russell 2000 One-Week PutWrite Index (WPTR)

The CBOE Russell 2000 One-Week PutWrite Index is designed to track the performance of a hypothetical strategy that sells an at-the-money (ATM) Russell 2000 Index put option on a weekly basis. The maturity of the written SPX put option is one week to expiry.

The written SPX 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.

This change to writing weekly options adds to the profit potential. However, because it trades options with high gamma, it is far more risky that the monthly buy-write.

 

Improve Risk Adjusted Returns

The annualized returns and standard deviations were calculated based using time periods from their launch through the end of 2014.  The best-performing methods are the PutWrite strategies which generate higher risk adjusted returns. Graphs are available here.

Annual Performance Comparisons

Whether you want to adopt option strategies that express an opinion on the market cycle or on volatility, these benchmarks allows you to track the hypothetical performance of such investments.