An Analysis of Index Option Writing with Monthly and Weekly Rollover

10 Pages Posted: 20 Mar 2016

See all articles by Oleg Bondarenko

Oleg Bondarenko

University of Illinois at Chicago - Department of Finance

Date Written: January 27, 2016

Abstract

This paper analyzes the performance of the two CBOE PutWrite Indexes through the end of 2015. The two PutWrite indexes are found to have had strong performance in several areas: 1) Annual premium income: From 2006 to 2015, the average annual gross premium collected was 24.1 percent for the PUT Index and 39.3 percent for the WPUT Index. While a one-time premium collected by the weekly WPUT Index usually was smaller than a one-time premium collected by the monthly PUT Index, the WPUT Index had higher aggregate annual premiums because premiums were collected 52 times, rather than 12 times, per year. 2) Lower risk: Over the last 10 years, since the launch of Weeklys options, the WPUT Index had a lower standard deviation than the PUT and S&P 500 Indexes. The maximum drawdowns were 24.2 percent for the WPUT Index, 32.7 percent for the PUT Index and 50.9 percent for the S&P 500 Index. 3) Higher long-term returns with lower volatility: Looking longer-term with the PUT Index, since mid-1986, the annual compound return of the PUT Index was 10.13 percent, compared with 9.85 percent for the S&P 500 Index. The standard deviation of the PUT Index was substantially lower as well, 10.16 percent versus the S&P 500 Index’s 15.26 percent.

Keywords: put writing indexes, weekly options, implied and realized volatilities

JEL Classification: G13

Suggested Citation

Bondarenko, Oleg, An Analysis of Index Option Writing with Monthly and Weekly Rollover (January 27, 2016). Available at SSRN: https://ssrn.com/abstract=2750188 or http://dx.doi.org/10.2139/ssrn.2750188

Oleg Bondarenko (Contact Author)

University of Illinois at Chicago - Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States
(312) 996-2362 (Phone)
(312) 413-7948 (Fax)

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