Methodology of the CBOE S&P 500 PutWrite Index (PUT SM ) (with supplemental information regarding the CBOE S&P 500 PutWrite T-W Index (PWT SM ))

Transcription

1 ehodology of he CBOE S&P 500 PuWre Index (PUT S ) (wh supplemenal nformaon regardng he CBOE S&P 500 PuWre T-W Index (PWT S )) The CBOE S&P 500 PuWre Index (cker symbol PUT ) racks he value of a passve nvesmen sraegy ( CBOE S&P 500 Collaeralzed Pu Sraegy ) whch consss of overlayng S&P 500 (SPX) shor pu opons over a money marke accoun nvesed n one- and hree-monhs Treasury blls. The SPX pus are sruck a-he-money and are sold on a monhly bass, usually on he 3 rd Frday of he monh. Ths s called he roll dae and maches he dae of S&P 500 opon expraons. The base dae of he PUT Index s June 1, 1988, when s value was 100. The daly hsorcal daa for he Pu Index was recenly exended back o June 30, 1986, on whch dae he PUT Index was a Daly hsorcal daa on he PUT Index s avalable a and from Bloomberg and oher prce quoe vendors. Roll Dae Transacons A each roll dae, any selemen loss from he exprng SPX pus s fnanced by he Treasury bll accouns and a bach of a-he-money SPX pus s sold. The revenue from her sale s added o he Treasury bll accoun. The hree-monh Treasury blls are deemed o maure when SPX pus on he arch quarerly cycle monhs are sold. The oal cash avalable s hen renvesed a he hree-monh Treasury bll rae. In oher monhs, he revenue from he sale of pus s nvesed separaely a he one-monh Treasury bll rae. Number of SPX Pus Sold The number of SPX pus sold s chosen o ensure full collaeralzaon. Ths means ha a he expraon of he pus, he oal value of he Treasury bll nvesmen(s) mus be equal o he maxmum possble loss from fnal selemen of he pu opons, or N*K where N s he number of pus sold and K s he a-he-money srke prce. Selecon of he A-he-oney Srke Prce The srke prce of he SPX pus ha are sold s he srke prce of lsed SPX pus ha s closes o bu no greaer han he las value of he S&P 500 Index repored before 11:00 a.m. ET. For example, f he las S&P 500 Index value repored before 11:00 a.m. ET s and he closes lsed SPX pu srke prce below s 1230 hen 1230 srke SPX pus are sold. 1 The hsorcal seres sars on June 30, 1986, a whch me he value of he porfolo was Ths porfolo was naed on he precedng 3 rd Frday, June 19, 1986, when he frs pus were sold and he proceeds from her sale was added o an nal cash njecon.

2 Sale Prce of Pu Opons 2 The SPX pus are deemed o be sold a a prce equal o he volume-weghed average of he raded prces ( VWAP ) of pu opons wh ha srke durng he half-hour perod begnnng a 11:30 a.m. ET. The CBOE calculaes he VWAP n a wo-sep process: frs, he CBOE excludes rades beween 11:30 a.m. and 12:00 p.m. ET ha are denfed as havng been execued as par of a spread, and hen he CBOE calculaes he weghed average of all remanng ransacon prces a ha srke beween 11:30 a.m. and 12:00 p.m. ET, wh weghs equal o he fracon of oal non-spread volume ransaced a each prce durng hs perod. The source of he ransacon prces used n he calculaon of he VWAP s CBOE s arke Daa Rereval ( DR ) Sysem. 3 If no ransacons occur a he pu srke beween 11:30 a.m. and 12:00 p.m. ET, hen he pu opons are deemed sold a he las bd prce repored before 12:00 p.m. ET. Fnal Selemen Prce of Exprng SPX Pus A expraon, he SPX pus are seled o a Specal Openng Quoaon (or SOQ, cker SET ) of he S&P The SOQ s a specal calculaon of he S&P 500 Index ha s compled from he openng prces of componen socks underlyng he S&P 500 Index. The SOQ calculaon s performed when all 500 socks underlyng he S&P 500 Index have opened for radng, and s usually deermned before 11:00 a.m. ET. 5 The fnal selemen prce of he exprng SPX pus s equal o max [0, K- SOQ],.e., he maxmum of 0 and he dfference beween her srke prce and he SOQ. Index Calculaon The CBOE calculaes he PUT n real-me every ffeen seconds durng each radng day excludng roll days. On any gven dae, he ndex represens he mark-o-marke value of he base dae $100 nvesed n he PUT sraegy. A he close of every busness dae, he value of he PUT s equal o he value of he Treasury bll accoun less he mark-o-marke value of he pus: 2 A slghly dfferen roll procedure s used o calculae he hsorcal seres of he CBOE S&P 500 PuWre Index. Ths s o ake no accoun he changes n he mng of he expraon of S&P 500 opons, and o mmc he changes made n he calculaon of he BX seres over me. Up o November 20, 1992, he roll s deemed o ake place a he close of he 3 rd Frday, he srke prce of he pu s deermned a 4:00 p.m. ET. and he pus are deemed sold a he las bd prce before 4:00 p.m. ET. Afer hs dae, he ndex s rolled a 11:00 a.m. ET nsead. And sarng on arch 17, 2006, he pus were sold a he VWAP. 3 Tme & Sales nformaon from CBOE s DR Sysem s dssemnaed hrough he Opons Prce Reporng Auhory (OPRA) and s publcly avalable hrough mos prce quoe vendors. 4 If he hrd Frday s an exchange holday, he pu opon wll be seled agans he SOQ on he prevous busness day and he pu opon wll be seleced on ha day as well. 5 If one or more socks n he S&P 500 Index do no open on he day he SOQ s calculaed, he fnal selemen prce for SPX opons s deermned n accordance wh he Rules and By-Laws of he Opons Clearng Corporaon.

3 PUT N las P where s he oal Treasury bll balance a he close of dae, Nlas s he number of pu opons sold a he las roll dae, and P s he arhmec average of he las bd and ask prces of he pu opon repored before 4:00 p.m. ET on dae. On all bu roll daes, he Treasury bll balance s obaned by compoundng he one and hree-monh Treasury balances a he prevous busness close a her respecve daly raes. ( 1 r 1 1) where = 1 and 3 for one and hree-monh Treasury blls, and r -1 s he correspondng Treasury bll rae from he prevous o he curren close. The Treasury bll raes beween wo roll daes are obaned by compoundng he daly raes. On every hrd roll dae, he Treasury blls are deemed o maure, he cash s used o pay for fnal selemen of he pus f hey expre n-he-money, and pus are sold. The ne cash balance avalable for renvesmen s: ( 1 r 1 ) 1 Nlasax[0, SOQ ] N P vwap where s he srke prce of he pu opons sold a he prevous roll dae, SOQ s he fnal selemen prce on roll dae, N s he number of pus sold and Pvwap s he volume-weghed average prce a whch he opons are sold. Ths balance s renvesed a he hree-monh Treasury bll rae. Hence n he monh followng a hrd roll dae, he one-monh Treasury balance s zero. The number of pus sold on any roll dae s se such ha he Treasury balance a he nex roll dae covers he maxmum pu selemen loss: Thrd roll dae: N 1 r ) N ax[0, K SOQ ]/( K /(1 R ) P ) ( 1 1 las old 3 vwap Oher roll daes: N ]/[ K P *(1 )] [ 1_ Roll 3_ Roll vwap R1 1 1 ax[ 0,(1 r 1) 1 Nlasax[0, SOQ ]]*(1 1) 1_ Roll R (( 1 r 1) 1 n[0,(1 r 1) 1 Nlasax[0, SOQ ]])*(1 3) 3_ Roll R where K s he srke prce a whch he pus are sold, and R1 and R3 are he oneand hree-monh Treasury bll raes o he nex roll dae.

4 SUPPLEENTAL INFORATION (added July 11, 2014) CBOE S&P 500 PuWre T-W Index (PWT) CBOE nroduced he CBOE S&P 500 PuWre T-W Index (Tcker: PWT) on July 3, The PWT Index replcaes he mehodology used o calculae he PUT Index, wh one excepon. Tha s, on each roll dae he SPX pus are deemed o be sold a he Pwap, a prce equal o he me-weghed average of repored bd prces, of he seleced SPX pu opon begnnng a 11:30 a.m. ET and endng a 12:00 p.m. ET. Accordngly, Pwap s used n place of he Pvwap on PWT roll daes. CBOE has no calculaed a separae seres of hsorcal values for he PWT Index pror o July 3, Raher, hsorcal values for he PWT Index pror o July 3, 2014, may be consdered he same as PUT Index values.

5 The CBOE S&P 500 PuWre Index (PUT) and CBOE S&P 500 PuWre T-W Index (PWT) are desgned o represen a proposed hypohecal shor pu sraegy. Lke many passve ndexes, he PUT and PWT Indexes do no ake no accoun sgnfcan facors such as ransacon coss and axes and, because of facors such as hese, many or mos nvesors should be expeced o underperform passve ndexes. In he consrucon of he hypohecal PUT and PWT ndexes, he SPX pus are assumed o be wren a a ceran prce on he hrd Frday of he monh. However, here s no guaranee ha all nvesors wll be able o sell a hs prce, and nvesors aempng o replcae he PUT and PWT Indexes should dscuss wh her brokers possble mng and lqudy ssues. Transacon coss for a pu wrng sraegy such as he PUT or PWT could be sgnfcanly hgher han ransacon coss for a passve sraegy of nvesng n Treasury blls. Pas performance does no guaranee fuure resuls. Sandard & Poor's, S&P, and S&P 500 are regsered rademarks of The cgraw-hll Companes, Inc. and are lcensed for use by he Chcago Board Opons Exchange, Incorporaed (CBOE). CBOE, no S&P, calculaes and dssemnaes he PUT and PWT Indexes. CBOE and Chcago Board Opons Exchange are regsered rademarks of he CBOE, and SPX S, BX S, PUT S, and PWT S are servce marks of he CBOE. The mehodology of he CBOE S&P 500 PuWre Index s owned by CBOE and may be covered by one or more paens or pendng paen applcaons. Opons nvolve rsk and are no suable for all nvesors. Pror o buyng or sellng an opon, a person mus receve a copy of Characerscs and Rsks of Sandardzed Opons (ODD). Copes of he ODD are avalable from your broker, by callng OPTIONS, or from The Opons Clearng Corporaon, One Norh Wacker Drve, Sue 500, Chcago, Illnos Supporng documenaon for clams, comparsons, recommendaons, sascs or oher echncal daa s avalable by callng OPTIONS, sendng an e-mal o help@cboe.com, or by vsng