White Papers

U.S. Listed Equity Options: A Primer for Hedge Fu​nds (PDF)
Hedge funds account for a large slice of the equity options market, but some managers may be missing the opportunity that these instruments can offer them. This article offers a concise overview of the strategies used, trading volatility as an asset class, managing tail risk and using options to enhance performance.

Box Spreads: Exchange-listed Options Strategies for Borrowing or Lending Cash (PDF)
This OCC white paper reviews how market participants can use exchange-listed options to borrow or lend cash through the use of the options box spread strategy. It explains the box spread; discusses its use as a form of secured financing; and demonstrates how listed-options can be a competitive marketplace for borrowing and lending cash.

Beyond the Covered Call (PDF)
MAI Investment Management has published a paper written by Portfolio Managers Seth Shalov and Kurt Nye that examines the art of enhancing a covered call strategy with cash-secured puts. While covered call strategies have captured the attention of investors by producing attractive risk-adjusted returns, an investor who relies solely on covered calls is neither minimizing his costs nor taking advantage of available liquidity. Shalov and Nye explore the potential impact on liquidity, costs, and optionality if a covered call strategy is combined with a cash-secured put strategy.

Trading Volatility as an Asset Class (PDF)
Volatility trading possesses a number of attractive qualities for both the fund manager and his ultimate investor. As an asset class, the cost of volatility increases when uncertainty increases, but also has a tendency to revert to a mean. It can be traded in a number of ways, including purely speculatively, or arbitraged (e.g., index versus stock, or short-term versus long-term, or implied versus historical). But at the core of a successful volatility-based strategy lies the effective use of options.

The Options Landscape for Hedge Funds (PDF)
Hedge funds remain one of the most active users of both exchange-traded and OTC options, particularly in the US, but some managers may still be missing the opportunity that these instruments can offer them. Equity-based investment strategies dominate hedge funds, which account for a large slice of the equity options market.

The Changing Risk Management Landscape in Derivatives (PDF)
Sponsored by The Options Industry Council, the Lepus report “The Changing Risk Management Landscape in Derivatives” highlights and explores a number of current trends, challenges and issues in the derivatives area including: Regulatory Changes, OTC vs. Exchange-Traded Derivatives, Risk Management, and Advantages of Different Approaches.

ISEE vs. Dow Jones Industrial Average - 2008 in Review (PDF)
Past analyses of ISEE values vs. market indices (DJIA and S&P 500) seemed to suggest that clusters of consecutive ISEE highs or lows may appear to signal changes in market direction, and usually the direction of the turn was contrarian to investor sentiment. By analyzing the data for ISEE vs. DJIA for all of 2008, we see this same pattern. It appears that the ISEE Index may be a good tool and useful contrarian indicator for potentially identifying turns in the market when clusters of extreme readings appear to occur. Provided by ISE.

Options Based Portfolio Management Strategies - An Idea Whose Time Has Arrived (PDF)
West Chester Capital Advisors has released a paper written by the firm's Chief Investment Officer & Principal, Thomas F. McKeon, CFA. The white paper discusses several options strategies which can be used as tools to manage portfolio risk and augment income within asset allocation and portfolio construct. Mr. McKeon states: "Investors of all stripes should be willing to consider OBPMS. The return and risk data is compelling. More return with less risk is the holy grail..." (May 2009)

The CBOE Volatility Index - VIX (PDF)
VIX provides a snapshot of expected stock market volatility over the next 30 calendar days and is calculated real-time from index option premiums. This paper discusses in detail, modifications done in September 2003 to the calculation methodology to incorporate more strike prices, make the calculated number independent of any pricing model and to change from using S&P 100 Index options to S&P 500 Index options. Provided by CBOE.

"VIX Futures and Options—A Case Study of Portfolio Diversification During the 2008 Financial Crisis" (PDF) by Edward Szado, CFA, Center for International Securities and Derivatives Markets (CISDM) at the University of Massachusetts, Amherst, analyzes data from March 2006 to December 2008. A University of Massachusetts study found that certain investments in futures and options on the CBOE Volatility Index® (VIX®) could have reduced downside risk for a typical institutional investment portfolio during the 2008 financial crisis. View Summary (PDF). Provided by CBOE.

Mutual Funds & Listed Options: Portfolio Management Strategies (PDF)
An overview of various ways to hedge large diversified portfolios using listed options. Examples provide descriptions for both positive and negative outcomes. This paper also provides a general idea of the legal and taxation issues as they relate to option use with mutual funds. Provided by CBOE.

Corporate Stock Repurchase Programs & Listed Options (PDF)
Given the recent popularity of corporate stock repurchase programs, this paper provides detailed information on how a corporation engaged in this activity may use either standardized or FLEX options to help reduce the cost or hedge these share buyback programs. Provided by CBOE.

Individual Retirement Accounts and Keogh Plans (PDF)
This paper covers both positive and negative effects of portfolio strategies that may be more suitable for use in retirement accounts. Legal and accounting issues are also addressed specific to a variety of retirement accounts. Provided by CBOE.

ERISA Pension Funds & Listed Options (PDF)
Information regarding ways for pension funds to incorporate the use of listed options into their portfolio management strategies. Ideas discussed include ways to gain market exposure with option positions and using options to hedge equity market risk. There is also an overview of legal issues related to a pension fund's use of listed options. Provided by CBOE.

Hedge Funds & Listed Options (PDF)
Covers ways hedge funds may use various option strategies to gain market exposure with limited, predefined risk and strategies to hedge potential downside exposure. A legal and regulatory review is provided as they relate specifically to hedge funds using options. Provided by CBOE.

High-net-worth Investors & Listed Options (PDF)
Provides portfolio management strategies for affluent investors, family offices and trust companies who wish to engage in options trading to gain market exposure or hedge their investments. Addresses information on options transactions involving insiders, affiliates and restricted securities in addition to an overview of taxation issues involving option trades. Provided by CBOE.