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New Academic Research Finds Options-Based Investment Strategies Outperform Long Stock Strategy
Chicago, IL — May 8, 2015
Covered Combination Strategy Yields Highest Performance Over 10-year Period
The Options Industry Council (OIC) announced today the release of a new academic research study, “The Performance of Options-Based Investment Strategies: Evidence for Individual Stocks During 2003-2013,” conducted by Professors Michael L. Hemler, University of Notre Dame’s Mendoza College of Business, and Thomas W. Miller, Jr., Mississippi State University. The study, which was supported by OIC, found that some options-based portfolio strategies seemingly outperform long stock and improve the risk-return tradeoff of long equity portfolios over time. The authors presented the results of the study today at the 2015 Financial Advisors Forum held in conjunction with the 33rd Annual Options Industry Conference taking place this week in Miami Beach, Florida.
This research is novel in that it compares the performance of several different options strategies, rather than a single strategy, using equity options. A distinctive feature of this study is its exploration of the covered combination strategy and early exercise. The study examined the relative performance of five different investment strategies, four options strategies and a long equity strategy, for individual stocks widely held in 401(k) plans from 2003 through 2013. The options strategies used in the study include the covered call, protective put, collar and covered combination. Of these five strategies, the covered combination, which is a multi-leg options strategy that combines the covered call and the cash-secured put, outperformed the others using four standard risk-adjusted performance measures: Sharpe ratio, Jensen’s alpha, Treynor ratio, and Sortino ratio.
“We applaud the work of Professors Hemler and Miller to create greater awareness and understanding of how specific options strategies can be used to enhance investment returns as well as reduce risk in up, down, and flat markets,” said Scot Warren, OCC Executive Vice President of Business Development and OIC. “OIC is proud to support this study and will use the research to further our efforts to educate financial advisors and investors about the benefits of options.”
To view the paper and presentation, visit: http://www.optionseducation.org/options_based_investment_strategies_2015.html
The Options Industry Council (OIC) is an industry cooperative funded by the U.S. options exchanges and OCC, the world’s largest equity derivatives clearing organization and sole central clearing house for U.S. listed options. OIC's mission is to provide free and unbiased education to investors and financial advisors about the benefits and risks of exchange-traded equity options. Managed by OCC, OIC delivers its education through the Options Education Program, a structured platform offering live seminars, self-directed online courses, mobile tools, podcasts, webinars and live help. OIC's resources can be accessed online at OptionsEducation.org, via mobile app for iOS, or by phone at 1-888-OPTIONS.
OCC is the world's largest equity derivatives clearing organization. Founded in 1973, OCC operates under the jurisdiction of both the U.S. Securities and Exchange Commission (SEC) as a Registered Clearing Agency and the U.S. Commodity Futures Trading Commission (CFTC) as a Derivatives Clearing Organization. OCC now provides central counterparty (CCP) clearing and settlement services to 16 exchanges and trading platforms for options, financial futures, security futures and securities lending transactions. More information about OCC is available at www.theocc.com.
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