Options- and Volatility-Based Strategy Benchmark Indexes

Transcription

1 Options- and Volatility-Based Strategy Benchmark Indexes FAQ on Strategies Designed for Portfolio Management By Matt Moran, VP, Cboe Cboe RMC Asia at Conrad Hong Kong 12:30 p.m. on Tuesday, 5 Dec. 2017

2 Cboe s Options- and Volatility-Based Strategy Benchmark Indexes BuyWrite Indexes BXM Cboe S&P 500 BuyWrite Index BXD Cboe DJIA BuyWrite Index BXMC Cboe S&P 500 Conditional BuyWrite Index BXMD Cboe S&P Delta BuyWrite Index BXMW Cboe S&P 500 Multi-Week BuyWrite Index BXN Cboe Nasdaq BuyWrite Index BXR Cboe Russell 2000 BuyWrite Index BXRC Cboe Russell 2000 Conditional BuyWrite Index BXRD Cboe Russell Delta BuyWrite Index BXY Cboe S&P 500 2% OTM BuyWrite Index Risk Reversal Index RXM SMILE Index SMILE Put Protection Index PPUT Cboe Risk Reversal Index Cboe SMILE Index Cboe S&P 500 5% Put Protection Index PutWrite Indexes PUT Cboe S&P 500 PutWrite Index PUTR Cboe Russell 2000 PutWrite Index WPUT Cboe S&P 500 One-Week PutWrite Index WPTR Cboe Russell 2000 One-Week PutWrite Index Combo, Butterfly & Condor Indexes CMBO Cboe S&P 500 Covered Combo Index BFLY Cboe S&P 500 Iron Butterfly Index CNDR Cboe S&P 500 Iron Condor Index Volatility-related Benchmark Indexes VPD Cboe VIX Premium Strategy Index VPN Cboe Capped VIX Premium Strategy Index VXTH Cboe VIX Tail Hedge Index LOVOL Cboe Low Volatility Index VSTG Cboe VIX Strangle Index Target Outcome Indexes Collar Indexes CLL Cboe S&P Collar Index CLLR Cboe Russell 2000 Zero-Cost Put Spread Collar Index CLLZ Cboe S&P 500 Zero-Cost Put Spread Collar SPRO SPEN SPRI SPAI Cboe S&P 500 Buffer Protect Index Balanced Series Cboe S&P 500 Enhanced Growth Index Balanced Series Cboe S&P 500 Range Bound Premium Income Index Series Cboe S&P 500 Dividend Aristocrats Target Income Index

3 Four Options-based Benchmarks -- Descriptions Index CBOE S&P 500 Buy Write Index (BXM) Strategy Purchase stocks in the S&P 500 index, and each month sell at-themoney index call options Year Introduced Earliest Historical Price 2002 June 30, 1986 CBOE S&P 500 2% OTM Buy Write Index (BXY) CBOE S&P 500 PutWrite Index (PUT) CBOE S&P Collar Index (CLL) Purchase stocks in the S&P 500 index, and each month sell index call options 2% out-of-the-money Purchase Treasury bills and sell cashsecured put options on the S&P 500 index Purchase stocks in the S&P 500 index, and each month sell index call options at 110% of the index value, and each quarter purchase index put options at 95% of the index value 2006 June 1, June 30, June 30, 1986 Descriptions of several more benchmark indices are in the Appendix. Excerpted from --"Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs (January 2015) Please see the last slide for important disclosures. 3

4 Questions re: Cboe Benchmark Indexes 1) Which Cboe benchmark indexes have had the strongest performance over the past three decades? 2) Why have indexes that sell SPX index options (BXMD, PUT, & BXM) had higher returns than the PPUT that buys protective put options? 3) Have option-writing benchmarks had strong relative performance in low -VIX environments? 4) Have put-writing indexes been risky with huge drawdowns? 5) How do the performances of benchmarks that write puts once a week (WPUT & WPTR) compare to those of benchmarks that write puts once a month (PUT & PUTR)? 6) Why have putwrite indexes that sell index puts (PUT and PUTR) had stronger performance than buywrite indexes that sell index calls (BXM and BXR)? 7) How does the performance of O-T-M buywrite benchmarks (BXY and BXMD) compare to the performance of A-T-M buywrite benchmark index (BXM)? 8) Have some VIX-based benchmark indexes had strong returns and/or shown potential as diversification tools over the past 11 years? 9) What are key metrics for comparing risk-adjusted returns of Cboe benchmark indices? 10) How have Morningstar and pension consulting firms treated Cboe benchmark indices? 11) How has the news media recently treated Cboe s benchmark indexes? 4

5 1) Which Cboe benchmark indexes have had the strongest performance over the past three decades? BXMD, S&P 500 and PUT had the highest returns since mid-1986 CNDR, PUT and BXM had the lowest volatility since mid-1986 Sharpe ratios since mid-1986 PUT 0.69; BXMD 0.58; BXM 0.53; S&P (see Appendix 2). Past performance is not predictive of future returns. 5

6 Heat Map by Wilshire at Exhibit CBOE S&P 500 BuyWrite (BXM) CBOE S&P Delta BuyWrite (BXMD) CBOE S&P 500 PutWrite (PUT) CBOE S&P 500 Zero- Cost Put Spread Collar (CLLZ) CBOE S&P 500 5% Put Protection (PPUT) -10.9% -7.6% 19.4% 8.3% 4.2% 13.3% 6.6% -28.7% 25.9% 5.9% 5.7% 5.2% 13.3% 5.6% 5.2% -8.9% -13.2% 25.9% 10.4% 5.0% 17.8% 6.2% -31.3% 32.1% 11.2% 7.3% 11.0% 19.1% 6.2% 4.0% -10.6% -8.6% 21.8% 9.5% 6.7% 15.2% 9.5% -26.8% 31.5% 9.0% 6.2% 8.1% 12.3% 6.4% 6.4% -10.1% -16.0% 18.0% 6.2% 3.0% 13.9% 4.4% -31.7% 24.7% 6.7% 3.1% 11.1% 16.4% 4.2% 2.0% -2.1% -17.6% 19.3% 6.0% 2.3% 12.3% -0.5% -20.1% 8.7% 11.7% -1.4% 10.0% 27.1% 11.2% -5.1% S&P % -22.1% 28.7% 10.9% 4.9% 15.8% 5.5% -37.0% 26.5% 15.1% 2.1% 16.0% 32.4% 13.7% 1.4% MSCI EAFE (US$ Net) -21.4% -15.9% 38.6% 20.2% 13.5% 26.3% 11.2% -43.4% 31.8% 7.8% -12.1% 17.3% 22.8% -4.9% -0.8% BAML Invest. Grade Corporate Bonds 8.4% 10.0% 9.1% 5.1% 4.6% 0.9% 5.8% -7.6% 21.8% 7.6% 9.6% 7.2% 1.0% 8.5% -2.9% S&P GSCI -31.9% 32.1% 20.7% 17.3% 25.6% -15.1% 32.7% -46.5% 13.5% 9.0% -1.2% 0.1% -1.2% -33.1% -32.9% This heat map uses color to rank returns across asset class by year (within each column). Over the past 15 years, option-writing strategies, particularly the BXMD and PUT strategies, typically had above-average returns and were rarely among the lower-performing asset classes. Other asset classes were occasionally top performers but also were ranked at or near the bottom more than once. Past performance is not predictive of future returns. Excerpted from Paper by Wilshire: Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis (2016) (at Sources: Bloomberg, CBOE, St. Louis Federal Reserve Bank and Wilshire Associates. Please read important disclosures at 6

7 Efficient Frontier by Wilshire at Exhibit 6 BXMD - CBOE S&P Delta BuyWrite Index BXM - CBOE S&P 500 BuyWrite Index PUT - CBOE S&P 500 PutWrite Index CLLZ - CBOE S&P 500 Zero-Cost Put Spread Collar PPUT - CBOE S&P 500 5% Put Protection Index In a three-decade analysis of the indexes above, the BXMD and PUT indexes had the strongest risk-adjusted returns of the equity-related investments in this study. Past performance is not predictive of future returns. Sources: Bloomberg, CBOE, St. Louis Federal Reserve Bank and Wilshire Associates. Please read important disclosures on Slide 17 and at 7

8 2) Why have indexes that sell SPX index options (BXMD, PUT, & BXM) had higher returns than the PPUT that buys protective put options? The volatility risk premium has rewarded sellers of index options S&P 500 (SPX) options Excerpted from paper by Wilshire -Three Decades of Options- Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis (2016) Russell 2000 (RUT) options Excerpted from paper by Fund Evaluation Group. Evaluating Options for Enhanced Risk-Adjusted Returns: CBOE Russell 2000 Option Benchmark Suite and Case Studies on Fund Use of Options (2016) Both papers are available at See the last slide for important disclosures. 8

9 Volatility Risk Premium Since Mid-2016 While many have asked why VIX Index recently has been lower than its long-term average, the SPX historic volatility averaged 8.2 since June Historic volatility for the MSCI EAFE Index rose to 40 after Brexit vote, but has an avg. of 11.1 since June Volatility indexes are not investable. The historic volatility numbers above reflect 20-trading-day historic volatility. 9

10 3) Have option-writing benchmarks had strong relative performance in low -VIX environments? Some ask about optionwriting strategies in periods where the VIX is lower than its long-term average. For 3 periods beginning Jan. 31, 1994, BXMD and PUT all had higher Sharpe Ratios than the S&P 500 Index. Analysis for periods beginning 31-Jan On that date the VIX Index closed at S&P 500 BXM - Cboe S&P 500 BuyWrite Index BXMD - Cboe S&P Delta BuyWrite Index PUT - Cboe S&P 500 PutWrite Index 1-Year Annualized Return 0.5% 4.4% 5.0% 7.3% Standard Deviation 10.4% 6.8% 8.7% 5.7% Sharpe Ratio Year Annualized Return 20.8% 14.3% 19.8% 13.9% Standard Deviation 10.0% 5.8% 8.1% 4.3% Sharpe Ratio Year Annualized Return 24.3% 17.5% 22.9% 17.5% Standard Deviation 13.8% 9.3% 12.0% 8.1% Sharpe Ratio Total return (pre-tax) indices. Sources: Bloomberg, Zephyr, Past performance is not predictive of future returns. 10

11 3) Have option-writing benchmarks had strong relative performance in low -VIX environments? For the 3-yr. & 5- yr. periods beginning Nov. 30, 2006, BXM, BXMD and PUT all had higher Sharpe Ratios than the S&P 500 Index. For the 3 periods beginning Apr. 29, 2011, BXM, BXMD and PUT both had lower standard deviations than the S&P 500 Index. Analysis for periods beginning 30-Nov On that date the VIX Index closed at S&P 500 BXM - Cboe S&P 500 BuyWrite Index BXMD - Cboe S&P Delta BuyWrite Index PUT - Cboe S&P 500 PutWrite Index 1-Year Annualized Return 7.7% 5.5% 6.9% 8.7% Standard Deviation 9.3% 5.2% 7.2% 4.8% Sharpe Ratio Year Annualized Return -5.8% -2.0% -1.6% 1.0% Standard Deviation 19.7% 15.6% 18.5% 15.6% Sharpe Ratio Year Annualized Return -0.2% 0.9% 2.8% 3.5% Standard Deviation 18.7% 14.7% 17.2% 15.0% Sharpe Ratio Total return (pre-tax) indices. Sources: Bloomberg, Zephyr, Past performance is not predictive of future returns. Analysis for periods beginning 29-Apr On that date the VIX Index closed at S&P 500 BXM - Cboe S&P 500 BuyWrite Index BXMD - Cboe S&P Delta BuyWrite Index PUT - Cboe S&P 500 PutWrite Index 1-Year Annualized Return 4.8% 7.6% 9.1% 8.3% Standard Deviation 16.1% 13.7% 14.8% 13.4% Sharpe Ratio Year Annualized Return 13.5% 7.6% 11.1% 8.6% Standard Deviation 12.3% 9.6% 10.8% 9.1% Sharpe Ratio Year Annualized Return 10.9% 6.0% 8.0% 6.8% Standard Deviation 12.4% 8.7% 10.2% 8.5% Sharpe Ratio Total return (pre-tax) indices. Sources: Bloomberg, Zephyr, Past performance is not predictive of future returns. 11

12 4) Have put-writing indexes been risky with huge drawdowns? The S&P 500 had more severe drawdowns than the PUT & WPUT indices (which engage in cash-secured put-writing) Excerpted from 2016 paper by Prof. Oleg Bondarenko -- Past performance is not predictive of future returns. Please read disclosures in the last slide. 12

13 5) How have benchmarks that write puts once a week (WPUT & WPTR) performed vs. benchmarks that write puts once a month (PUT & PUTR)? PUT had higher returns than WPUT. WPUT had lower standard deviation than PUT and S&P

14 Rolling 1-Year Returns for PUT & WPUT PUT often had bigger upside and downside moves than WPUT PUT had higher returns than WPUT in 6 of past 8 calendar years Returns in Recent Years (thru Oct.) PUT 9.5% -26.8% 31.5% 9.0% 6.2% 8.1% 12.3% 6.4% 6.4% 7.8% 8.9% WPUT 10.2% -15.2% 15.2% 6.9% 3.9% 11.5% 14.4% 0.2% 0.4% 7.7% 8.6% Total return (pre-tax) benchmark indices. Past performance is not predictive of future results. Sources: Bloomberg and Cboe Options Market. 14

15 Year 2008 for WPUT and PUT Indices In 2008 WPUT down 15% PUT down 27% S&P 500 down 37% 61.6% - gross premiums received by WPUT 41.9% - gross premiums received by PUT 15

16 Year 2009 for WPUT and PUT Indices In 2009 PUT rose 32% S&P 500 rose 26% WPUT rose 15% 53.1% - gross premiums received by WPUT 38.6% - gross premiums received by PUT 16

17 Aggregate Gross Premiums for PUT and WPUT Excerpted from 2016 paper by Prof. Oleg Bondarenko -- Past performance is not predictive of future returns. Please read the last slide for disclosures. 17

18 PUTR and WPTR Since 2006 For benchmarks that sell puts on Russell 2000 (RUT) - PUTR had higher returns than WPTR PUTR had some bigger extreme upside and downside moves than WPTR 18

19 Gross Premiums for BXR & WPTR Indices WPTR generated higher aggregate gross premiums per year than the BXR Index Excerpted from paper by Fund Evaluation Group. Evaluating Options for Enhanced Risk-Adjusted Returns: CBOE Russell 2000 Option Benchmark Suite and Case Studies on Fund Use of Options (2016) (available at Past performance is not predictive of future returns. See the last slide for important disclosures. 19

20 6) Why have putwrite indexes that sell index puts (PUT and PUTR) had stronger performance than buywrite indexes that sell index calls (BXM and BXR)? PUT had higher returns than BXM since mid PUT had higher returns in 7 of last 8 full years Returns in Recent Years (thru Oct.) BXM 6.6% -28.7% 25.9% 5.9% 5.7% 5.2% 13.3% 5.6% 5.2% 7.1% 10.6% PUT 9.5% -26.8% 31.5% 9.0% 6.2% 8.1% 12.3% 6.4% 6.4% 7.8% 8.9% Total return (pre-tax) benchmark indices. Past performance is not predictive of future results. Sources: Bloomberg and Cboe Options Market. Sharpe ratios since mid-1986 PUT 0.69; BXM 0.53; S&P (see Appendix 2). Past performance is not predictive of future returns. Two papers address the issue - why were returns higher for PUT (sell puts) than for BXM (sell calls)? AQR paper PutWrite versus BuyWrite: Yes, Put-Call Parity Holds Here Too (2017) at Cboe paper The BXM and PUT Conundrum (2014) 20

21 Indexes That Sell Russell 2000 Options For indexes that sell options on Russell 2000 (RUT), PUTR (sell puts) had higher returns than the BXR (sell calls) PUTR had higher returns than BXR in 5 of last 8 years Returns in Recent Years (thru Oct.) PUTR 16.1% -28.5% 34.3% 13.8% 6.1% 10.4% 12.0% 3.9% 4.9% 8.6% 7.1% Russell % -33.8% 27.2% 26.9% -3.7% 15.7% 38.8% 4.9% -4.4% 21.3% 11.9% BXR 5.8% -36.0% 28.5% 7.5% 6.8% 9.0% 14.5% 0.9% 4.6% 11.1% 6.5% Total return (pre-tax) benchmark indices. Past performance is not predictive of future results. Sources: Bloomberg and Cboe Options Market. 21

22 7) How does the performance of O-T-M buywrite benchmarks (BXY and BXMD) compare to the performance of A-T-M buywrite benchmark index (BXM)? Since mid-1988 BXMD and BXY had higher returns than the S&P 500 and BXM. BXMD and BXY had higher returns than BXM in 7 of the last 8 years. BXM had lower volatility than BXY, BXMD, and S&P 500. Returns in Recent Years (thru Oct.) BXMD 6.2% -31.3% 32.1% 11.2% 7.3% 11.0% 19.1% 6.2% 4.0% 8.4% 13.2% BXY 6.1% -31.2% 32.1% 9.8% 7.2% 10.2% 20.8% 5.5% 2.8% 8.4% 15.8% S&P % -37.0% 26.5% 15.1% 2.5% 15.5% 32.4% 13.7% 1.4% 12.0% 16.9% BXM 6.6% -28.7% 25.9% 5.9% 5.7% 5.2% 13.3% 5.6% 5.2% 7.1% 10.6% Total return (pre-tax) benchmark indices. Past performance is not predictive of future results. Sources: Bloomberg and Cboe Options Market. Betas Since Mid-1986 BXM 0.62 BXMD 0.82 See Appendix 2 Past performance is not Predictive of future returns 22

23 Gross Premiums and Implied Volatility Avg. monthly gross premium generated was 1.8% for BXM Index and 0.8% for BXMD Index. Note the relationship between gross premiums (top chart) and VIX Index level. Past performance is not predictive of future returns. Please read disclosures in the last slide. 23

24 8) Have some VIX-based benchmark indexes had strong returns and/or shown potential as diversification tools over the past 11 years? Higher Returns - The S&P inverse VIX futures index and VPD index in chart both had higher 11-year returns (and worse 2008 drawdowns) than the S&P 500 Index. Diversification Potential Both the VXTH Index (buys VIX options) and the S&P 500 VIX Mid-Term Futures Index (buys VIX futures) had better returns than the S&P 500 in 2008, but the S&P 500 had higher returns since Returns in Recent Years (thru Nov.) S&P 500 VIX Short Term Futures Daily Inverse Index -71.0% 116.0% 144.8% -45.4% 162.6% 108.1% -7.9% -15.8% 83.3% 151.7% VPD - Cboe VIX Premium Strategy Index -44.9% 47.3% 31.7% -8.8% 37.1% 13.2% 2.9% 6.6% 25.2% 13.4% S&P % 26.5% 15.1% 2.5% 15.5% 32.4% 13.7% 1.4% 12.0% 20.5% VXTH - Cboe VIX Tail Hedge Index -19.3% 16.0% 21.1% 5.9% 3.6% 19.4% 33.6% 0.3% -16.5% -21.2% S&P 500 VIX Mid-term Futures Index TR 83.9% -23.6% -13.2% -7.6% -52.9% -43.8% -16.5% -14.2% -21.0% -43.7% Total return (pre-tax) benchmark indices. Past performance is not predictive of future results. Sources: Bloomberg and Cboe Options Market. 24

25 9) What are key metrics for comparing risk-adjusted returns of Cboe benchmark indices? Excerpted from 2016 paper by Prof. Oleg Bondarenko -- Past performance is not predictive of future returns. Please read disclosures in the last slide. 25

26 11) How have Morningstar and pension consulting firms treated Cboe benchmark indices? STUDY WITH LIST OF 119 OPTIONS-BASED FUNDS. The 2015 study by Black & Szado provides lists with 119 funds (mutual funds, closed-end funds, and ETFs) that invest in options, and provides analyses of performance of the funds, the BXM, S&P 500, and other indexes. MORNINGSTAR In April 2016 Morningstar placed dozens of mutual funds in its new Option Writing category in its U.S Retail Category system. Morningstar s Category Index for the new Option Writing category is the CBOE S&P 500 BuyWrite Index (BXM). Steve Sears in Barron s Striking Price column on May 7, 2016 THE OPTIONS INDUSTRY has taken a major step onto Main Street. Morningstar, which millions of individuals rely upon to evaluate mutual funds, has created a category for options-trading funds. The significance of this can t be overstated. It indicates options have become part of the mainstream investment landscape, like growth mutual funds and index funds. Morningstar s recognition will probably incentivize asset managers to market new funds in the category. 26

27 Pension Consultants and Research Papers Eight Research Papers 1. Cambridge Associates. Highlights from the Benefits of Selling Volatility (2011). 2. Aon Hewitt. Harvesting the Equity Insurance Risk Premium: Know Your Options (2014). 3. Hewitt EnnisKnupp. The CBOE S&P 500 BuyWrite Index (BXM) - A Review of Performance (2012). 4. Ennis Knupp & Associates. "Evaluating the Performance Characteristics of the CBOE S&P 500 PutWrite Index" (2008). 5. Russell Investments. Capturing the Volatility Premium through Call Overwriting. (2012). 6. Callan Associates. "An Historical Evaluation of the CBOE S&P 500 BuyWrite Index Strategy." (2006). 7. Pension Consulting Alliance. Option- Writing Strategies in a Low-Volatility Framework The Journal of Investing (2015). 8. Wilshire. Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis (Sept. 2016). Most of the papers above focus on CBOE benchmark indexes and are at 27

28 11) How has the news media recently treated Cboe s benchmark indexes? Wall Street Journal (Aug. 21, 2016) Pensions Try a Fear Trade. Options strategy used by pension funds aims to work like a volatility dampener Some pension funds are seeking to profit from others fear. The CBOE S&P 500 PutWrite Index, a benchmark for the strategy, didn t fall as sharply as the market during the selloff of early 2016, but has lagged behind the rallies. In 2008, during the financial crisis, the putwrite strategy returned minus-27% compared with the S&P 500 s return of minus-37%. CBOE s calculations of how the index would have performed before its 2007 creation estimate that annualized returns over the 30 years through this June were 10%, narrowly topping the S&P 500. Pensions & Investments (Oct. 3, 2016) Funds go exotic with put-write options to stem volatility In its paper, Wilshire noted that the CBOE S&P 500 put-write index, with an annualized 10.1% return, outperformed the CBOE S&P 500 buy-write index's 8.9% and the S&P 500 stock index's 9.9% over 30 years ended Dec. 31. And for 2015 alone, the put-write index returned 6.4% vs. the buy-write index's 5.2% and the S&P 500's 1.4%. Institutional Investor (March 2017) The Hedging Strategy That s Cheaper Than Hedge Funds. Two big pension funds are now employing a strategy called cash-secured put writing

29 Appendix 1 - Descriptions for Select CBOE Benchmark Indexes (1 st page) Ticker 1 BFLY 2 BXM 3 BXMC 4 BXMD 5 BXMW 6 BXRC 7 BXRD 8 BXY CBOE Benchmark Index BFLY - CBOE S&P 500 Iron Butterfly Index - tracks the performance of a hypothetical option trading strategy that 1) sells a rolling monthly at-the-money (ATM) S&P 500 Index (SPX) put and call option; 2) buys a rolling monthly 5% out-of-the-money (OTM) SPX put and call option to reduce risk; and 3) holds a money market account invested in one-month Treasury bills, which is rebalanced on the option roll day and is designed to limit the downside return of the index BXM - CBOE S&P 500 Buy Write Index - tracks the performance of a hypothetical option trading strategy that purchases stocks in the S&P 500 index, and each month sell at-the-money (ATM) SPX index call options BXMC - CBOE S&P 500 Conditional BuyWrite Index - covered call strategy that holds a long position indexed to the S&P 500 Index and sells a monthly at-the-money (ATM) S&P 500 Index (SPX) 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 Volatility Index (VIX Index) when the call option is written on the roll date. The BXMC Index rolls on a monthly basis, typically every third Friday of the month BXMD - CBOE S&P Delta BuyWrite Index is designed to track the performance of a hypothetical covered call strategy that holds a long position indexed to the S&P 500 Index and sells a monthly out-of-the-money (OTM) S&P 500 Index (SPX) call option. The call option written is the strike nearest to the 30 Delta at 10:00 a.m. CT on the Roll Date. BXMW - CBOE S&P 500 Multi-Week BuyWrite Index - tracks the performance of a hypothetical weekly covered call strategy with staggered short positions in call options expiring in consecutive four week options. The BXMW Index is constructed as a combined portfolio of four mini BuyWrite indexes. Expirations are staggered so that the BXMW Index sells four-week options on a rolling weekly basis. BXRC - 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-themoney (ATM) Russell 2000 Index call option. The written number of ATM call options will be either ½ unit or one 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 BXRD - CBOE Russell 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. BXY - CBOE S&P 500 2% OTM Buy Write Index - purchase stocks in the S&P 500 index, and each month sell SPX index call options that are 2% out-of-the-money

30 Appendix 1 - Descriptions for Select CBOE Benchmark Indexes (2 nd page) Ticker 9 CLL 10 CLLR 11 CLLZ 12 CMBO 13 CNDR 14 LOVOL 15 PPUT 16 PUT CBOE Benchmark Index CLL - CBOE S&P Collar Index - purchase stocks in the S&P 500 index, and each month sell SPX call options at 110% of the index value, and each quarter purchase SPX put options at 95% of the index value CLLR - 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 percent to 5 percent Russell 2000 Index put option spread; and 3) sells a monthly out-ofthe-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. CLLZ - CBOE S&P 500 Zero-Cost Put Spread Collar Index - track the performance of a hypothetical option trading strategy that 1) holds a long position indexed to the S&P 500 Index; 2) on a monthly basis buys a 2.5% - 5% S&P 500 Index (SPX) put option spread; and 3) sells a monthly out-of-the-money (OTM) SPX call option to cover the cost of the put spread CMBO - CBOE S&P 500 Covered Combo Index - track a short strangle strategy collateralized by a portfolio holding a long position indexed to the S&P 500 Index and a fixed income account. The CMBO Index sells a monthly at-the-money (ATM) S&P 500 Index (SPX) put option and a monthly 2% out-of-the-money (OTM) SPX call option. The short SPX put position is collateralized by a money market account invested in one-month Treasury bills and the 2% OTM SPX call is collateralized by the long S&P 500 Index position. CNDR - CBOE S&P 500 Iron Condor Index - track the performance of a hypothetical option trading strategy that 1) sells a rolling monthly out-of-the-money (OTM) S&P 500 Index (SPX) put option (delta - 0.2) and a rolling monthly out-of-the-money (OTM) SPX call option (delta 0.2); 2) buys a rolling monthly OTM SPX put option (delta ) and a rolling monthly OTM SPX call option (delta 0.05) to reduce risk; and 3) holds a money market account invested in one-month Treasury bills, which is rebalanced on option roll days and is designed to limit the downside return of the index. LOVOL - CBOE Low Volatility Index - is a 40% / 60% blend of the popular CBOE S&P 500 BuyWrite Index (BXM) and CBOE VIX Tail Hedge Index (VXTH); the portfolio overlays long VIX calls and short S&P 500 calls over an investment in S&P 500 stocks PPUT - CBOE S&P 500 5% Put Protection Index - strategy that holds a long position indexed to the S&P 500 Index and buys a monthly 5% out-of-the-money (OTM) S&P 500 Index (SPX) put option as a hedge PUT - CBOE S&P 500 PutWrite Index - purchase Treasury bills and sell cash-secured at-the-money put options on the S&P 500 index

31 Appendix 1 - Descriptions for Select CBOE Benchmark Indexes (3rd page) Ticker 17 PUTR 18 RXM 19 SMILE 20 VPD 21 VPN 22 VSTG 23 VXTH 24 WPTR 25 WPUT CBOE Benchmark Index PUTR - CBOE Russell 2000 PutWrite Index is designed to track the performance of a hypothetical strategy that sells a monthly at-the-money (ATM) Russell 2000 Index put option. The written Russell 2000 put option is collateralized by a money market account invested in one-month Treasury bills. The PUTR Index rolls on a monthly basis, typically every third Friday of the month. RXM - CBOE S&P 500 Risk Reversal Index - is a benchmark index designed to track the performance of a hypothetical risk reversal strategy that: (1) buys a rolling out-of-the-money (delta 0.25) monthly SPX Call option; (2) sells a rolling out-of-the-money (delta ) monthly SPX Put option; and (3) holds a rolling money market account invested in one-month Treasury bills to cover the liability from the short SPX Put option position. SMILE - CBOE SMILE Index - combines a short one-month SPX 25 delta put with a one month 25 delta call. The call is held long or short depending on the shape of the smile, as summarized by the ratio of prices of the put and call. The option position is collateralized by an investment in one-month Treasury bills. VPD - CBOE VIX Premium Strategy Index - overlays a sequence of short one-month VIX futures on a money market account; the short VIX futures positions are held until expiration and new VIX futures are then sold VPN - CBOE Capped VIX Premium Strategy Index - tracks the performance of a strategy that systematically sells 1-month VIX futures, capped by the purchase of a VIX call option; the short VIX futures position is capped with long VIX calls struck about 25 points higher than the VIX futures price VSTG - CBOE VIX Strangle Index - a premium capture index that overlays short VIX call and put options with a capped long VIX call option position. The position is collateralized by fixing the number of strangles such that 80% of capital is reserved. VXTH - CBOE VIX Tail Hedge Index - buys and holds S&P 500 stocks, and also often buys 30-delta call options on the CBOE Volatility Index (VIX ). WPTR - CBOE Russell 2000 One-Week PutWrite Index is designed to track the performance of a hypothetical strategy that sells an ATM Russell 2000 Index put option on a weekly basis. The maturity of the written Russell 2000 put option is one week to expiry. The written Russell 2000 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. WPUT - CBOE S&P 500 One-Week PutWrite Index - track the performance of a hypothetical strategy that sells an at-the-money (ATM) S&P 500 Index (SPX) put option on a weekly basis. The maturity of the written SPX put option is always one week to expiry. The written SPX put option is collateralized by a money market account invested in one-month Treasury bills.

32 Appendix 2 More Metrics Since Mid-1986 (July 1986 Nov. 2017) 32

33 Important Disclosures Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (the ODD ). The ODD and supporting documentation for any claims, comparisons, recommendations, statistics or other technical data in these materials are available by calling OPTIONS, or contacting Cboe at The information in these materials is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Many of the matters discussed are subject to detailed rules, regulations, and statutory provisions which should be referred to for additional detail and are subject to changes that may not be reflected in these materials. No statement within this material should be construed as a recommendation to buy or sell a security or to provide investment advice. The Cboe S&P 500 BuyWrite Index (BXM SM ), Cboe S&P 500 2% OTM BuyWrite Index (BXY SM ), Cboe DJIA BuyWrite Index (BXD SM ) and Cboe Russell 2000 BuyWrite Index (BXR SM ) (the Indexes ) are designed to represent proposed hypothetical buy-write strategies. Like many passive benchmarks, the Indexes do not take into account significant factors such as transaction costs and taxes. Transaction costs and taxes for a buy-write strategy could be significantly higher than transaction costs for a passive strategy of buying-and-holding stocks. Investors attempting to replicate the Indexes should discuss with their brokers possible timing and liquidity issues. Past performance does not guarantee future results. These materials contain comparisons, assertions, and conclusions regarding the performance of indexes based on backtesting, i.e., calculations of how the indexes might have performed in the past if they had existed. Backtested performance information is purely hypothetical and is provided in this document solely for informational purposes. The methodology of the Indexes is owned by Cboe, Incorporated (Cboe) may be covered by one or more patents or pending patent applications. S&P, and S&P 500 are registered trademarks of Standard & Poor's Financial Services, LLC and are licensed for use by Cboe, Incorporated (Cboe) and Cboe Futures Exchange, LLC (CFE). Cboe's financial products based on S&P indices are not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation regarding the advisability of investing in such products. Cboe Volatility Index, VIX, Cboe and Chicago Board Options Exchange are registered trademarks and BXM, BXD, BXN and BXY are servicemarks of CboeCboe and Chicago Board Options Exchange are registered trademarks and Cboe Options Institute is a service mark of Chicago Board Options Exchange, Incorporated (Cboe). All other trademarks and service marks are the property of their respective owners Cboe Exchange, Inc. All rights reserved. 33