Options- and Volatility based Benchmark Indexes > Manage Portfolio Volatility > Generate Premium Income > Potentially Enhance Risk-adjusted Returns

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1 Options- and Volatility based Benchmark Indexes > Manage Portfolio Volatility > Generate Premium Income > Potentially Enhance Risk-adjusted Returns Prepared for CBOE RMC Asia on 30 Nov By Matt Moran, CBOE,

2 CBOE Strategy Benchmark Indexes BuyWrite Indexes 1 BXM CBOE S&P 500 BuyWrite Index 2 BXD CBOE DJIA BuyWrite Index 3 BXMC CBOE S&P 500 Conditional BuyWrite Index 4 BXMD CBOE S&P Delta BuyWrite Index 5 BXMW CBOE S&P 500 Multi-Week BuyWrite Index 6 BXN CBOE Nasdaq BuyWrite Index 7 BXR CBOE Russell 2000 BuyWrite Index 8 BXRC CBOE Russell 2000 Conditional BuyWrite Index 9 BXRD CBOE Russell Delta BuyWrite Index 10 BXY CBOE S&P 500 2% OTM BuyWrite Index PutWrite Indexes 11 PUT CBOE S&P 500 PutWrite Index 12 PUTR CBOE Russell 2000 PutWrite Index 13 WPUT CBOE S&P 500 One-Week PutWrite Index 14 WPTR CBOE Russell 2000 One-Week PutWrite Index Combo, Butterfly & Condor Indexes 15 CMBO CBOE S&P 500 Covered Combo Index 16 BFLY CBOE S&P 500 Iron Butterfly Index 17 CNDR CBOE S&P 500 Iron Condor Index Collar Indexes 18 CLL CBOE S&P Collar Index 19 CLLR CBOE Russell 2000 Zero-Cost Put Spread Collar Index 20 CLLZ CBOE S&P 500 Zero-Cost Put Spread Collar Risk Reversal Index 21 RXM CBOE Risk Reversal Index SMILE Index 22 SMILE CBOE SMILE Index Put Protection Index 23 PPUT CBOE S&P 500 5% Put Protection Index Volatility-related Benchmark Indexes 24 VPD CBOE VIX Premium Strategy Index 23 VPN CBOE Capped VIX Premium Strategy Index 24 VXTH CBOE VIX Tail Hedge Index 25 LOVOL CBOE Low Volatility Index 26 VSTG CBOE VIX Strangle Index Target Outcome Indexes SPRO CBOE S&P 500 Buffer Protect Index Balanced Series SPEN CBOE S&P 500 Enhanced Growth Index Balanced Series CBOE 2

3 Consultants The Largest Investment Consultants Ranked by worldwide institutional assets under advisement, in millions, as of June 30, Source: Pensions & Investments (Nov. 30, 2015) 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 CBOE 3

4 PutWrite Indexes in 2016 Four CBOE benchmarks PUT, PUTR, WPUT, & WPTR Pension funds Hawaii and South Carolina WSJ on Aug. 21, 2016 Pensions Play With Puts for Protection - Options strategy used by pension funds aims to work like a volatility dampener. annualized returns [for PUT] over the 30 years through this June were 10%, narrowly topping the S&P 500. Risk mitigation was behind a decision by the Hawaii Employees Retirement System to invest $1.6 billion of its $15 billion portfolio in a put-writing strategy Pensions & Investments on Oct. 3, Funds go exotic with put-write options to stem volatility. Put-write equity options are finding their way into more pension fund allocations to protect against volatility and, in some cases, take the place of fixed income as an income provider. ETF designed to track CBOE PUT Index Five papers in 2016 strong risk-adjusted returns for CBOE putwrite indexes (by Bondarenko, Shore, Black & Szado, Wilshire, and Fund Evaluation Group (FEG)) CBOE 4

5 Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis Wilshire Analytics Applied Research Group September Wilshire Associates Incorporated. All rights reserved. CBOE 5

6 CBOE Benchmark Indexes Descriptions Ticker * Description Exhibit 1 BXM CBOE S&P 500 BuyWrite Index. Strategy that purchases stocks in the S&P 500 index and each month sells at-the-money SPX index call options. BXMD CLLZ PPUT PUT CBOE S&P Delta BuyWrite Index. Covered call strategy that holds a long position indexed to the S&P 500 Index and sells monthly 30-delta out-of-the-money SPX index call options. CBOE S&P 500 Zero-Cost Put Spread Collar Index. Strategy that (1) holds a long position indexed to the S&P 500 Index; (2) on a monthly basis buys a 2.5% - 5.0% SPX put option spread; and (3) sells a monthly out-of-the-money SPX call option to cover the cost of the put spread. 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 SPX put option as a hedge. CBOE S&P 500 PutWrite Index. Strategy that purchases Treasury bills and sells cash-secured at-the-money put options on the S&P 500 Index. *unless otherwise noted, all indices used in this presentation are Total Return indices (return includes price change + dividends/interest). Visit to see full descriptions of methodologies of these indexes. Since 2002, dozens of benchmark indices that use index options have been introduced. This study analyzes the performance of five indices above. The BXM Index was the initial major options based benchmark index offered, and is probably the best known of all options based benchmark indices. Excerpted from Paper by Wilshire: Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis (2016) (at CBOE 6

7 Benchmark Indexes Over 30 Years Exhibit 2 Selected Indices Returns since CBOE S&P Delta BuyWrite Index 6.22% 31.25% 32.12% 11.25% 7.25% 11.03% 19.13% 6.17% 3.99% CBOE S&P 500 PutWrite Index 9.51% 26.77% 31.51% 9.02% 6.17% 8.14% 12.28% 6.38% 6.40% S&P 500 Total Return 5.49% 37.00% 26.46% 15.06% 2.11% 16.00% 32.39% 13.69% 1.38% Over the past 30 years, two option-based indices that sold index options (BXMD and PUT) had higher returns than the US Equity market (both large cap and total market), and higher than option-based indices that bought index put options (CLLZ and PPUT). The BXMD and PUT indices have produced strong returns since the 2008 Financial Crisis but lagged the S&P 500 in when equities surged. Past performance is not predictive of future returns. Sources: Bloomberg, CBOE, St. Louis Federal Reserve Bank and Wilshire Associates. Please read important disclosures at Excerpted from Paper by Wilshire: Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis (2016) (at CBOE 7

8 Asset Class Relative Performance 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. Sources: Bloomberg, CBOE, St. Louis Federal Reserve Bank and Wilshire Associates. Please read important disclosures at Excerpted from Paper by Wilshire: Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis (2016) (at CBOE 8

9 Returns and Volatility Since Mid benchmark indexes PUT Index is in the top two on both charts 5 options indexes had lower volatility Past results are not predictive of future performance. See the last slide for important disclosures. CBOE 9

10 Efficient Frontier 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 at Excerpted from Paper by Wilshire: Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis (2016) (at CBOE 10

11 Richly Priced 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. CBOE 11

12 Capacity Notional Value of Average Daily Volume in S&P 500 Options (in $Billions) ( ) More than $190 billion per day in 2015 Exhibit 15: Fund managers examine trading liquidity and capacity when considering investment vehicles. The approximate daily notional value of trading in SPX options in 2015 can be estimated by multiplying the average daily volume times the value of the S&P 500 Index times the $100 options contract multiplier, for a value of more than $193 billion per day. Some investors use a deltaweighting multiplier to develop a more conservative estimate for notional value of options trading. Sources: Bloomberg and CBOE. From: Black and Szado. Performance Analysis of CBOE S&P 500 Option Selling Indices (January 2016). Please see the last slide for important disclosures. CBOE 12

13 2016 CBOE 13

14 Growth Since 2001 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. CBOE 14

15 Universe Rank 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. CBOE 15

16 Most Severe Drawdowns 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. CBOE 16

17 Risk & Return 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. CBOE 17

18 Gross Premiums for BXR & WPTR Indices 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. CBOE 18

19 Benchmarks in 2008 (slide 1) In 2008 MSCI EM fell 53.3%, BXMD fell 31.3%, and WPUT fell 15.2% % Changes Oct Yr S&P % -37.0% MSCI EM -27.4% -53.3% FTSE China % -49.4% S&P GSCI -28.2% -46.5% BXMD -15.6% -31.3% PUT -17.7% -26.8% WPUT -14.1% -15.2% Aggregate Premiums Received in 2008 BXMD 17.6% PUT 41.9% WPUT 61.6% Past results are not predictive of future performance. See the last slide for important disclosures. CBOE 19

20 Benchmarks in 2008 (slide 2) In 2008 VXTH fell 19.3% and VSTG rose 14.5% % Changes Yr S&P % MSCI EM -53.3% FTSE China % S&P GSCI -46.5% VXTH -19.3% VSTG 14.5% Descriptions 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 ). 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. Past results are not predictive of future performance. See the last slide for important disclosures. CBOE 20

21 Benchmarks in 2009 (slide 1) In BXMD and PUT both rose more than 31% (higher than S&P 500) There was a big 7.4 point spread between avg. implied volatility (31.5) and realized volatility (24.1) on SPX % Changes Yr S&P % MSCI EM 78.5% FTSE China % S&P GSCI 13.5% BXMD 32.1% PUT 31.5% WPUT 15.2% Aggregate Premiums Received in 2009 BXMD 15.7% PUT 38.6% WPUT 53.1% Past results are not predictive of future performance. See the last slide for important disclosures. CBOE 21

22 Benchmarks in 2009 (slide 2) In 2009 VXTH and VSTG both rose more than 16% (less than the stock indexes) % Changes Yr S&P % MSCI EM 78.5% FTSE China % S&P GSCI 13.5% VXTH 16.0% VSTG 19.6% Descriptions 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 ). 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. Past results are not predictive of future performance. See the last slide for important disclosures. CBOE 22

23 Drawdowns Can the use of weekly options lessen the risk of large drawdowns? From: 2016 paper by Oleg Bondarenko. Past performance is not predictive of future returns. Please read the last slide for disclosures. CBOE 23

24 Gross Premiums for PUT & WPUT Does your firm sell index options with weekly expirations (in addition to standard expirations) to generate more gross premiums? From: 2016 paper by Oleg Bondarenko. Past performance is not predictive of future returns. Please read the last slide for disclosures. CBOE 24

25 Regimes for Generating Premiums The three highest years for avg. level of SKEW Index are 2014, 2015 and Y-T-D 2016 VIX Maximum Average 19.7 Median 17.8 Minimum 9.31 From 2 Jan thru 17 Nov thru Nov 17 Avg. per year SKEW Maxmum Average Median Minimum From 2 Jan thru 17 Nov thru Nov 17 Avg. per year CBOE 25

26 New Universes for Options-based Funds 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. INFORMA / ZEPHYR In July 2016 Informa Investment Solutions announced a new covered options universe available in their PSN database. The covered options writing universe was designed to help advisors and institutional investors identify and evaluate the performance of separately managed accounts and managers using options-based strategies. The Zephyr StyleADVISOR also has decades of monthly historical data on the CBOE S&P 500 BuyWrite Index (BXM). EVESTMENT Over 40 options-based CBOE Strategy Benchmark Indexes were added to the evestment database in 2016, providing the ability to track performance of asset managers and index benchmarks. 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. CBOE 26

27 Case Studies: Pension Fund Managers and the BXM Index Benchmark The three charts above compare the performance over various tie periods for select managers that engage in options-based strategies versus the most popular options-based benchmark index the CBOE S&P 500 BuyWrite Index (BXM). CBOE 27

28 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. CBOE 28

29 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. CBOE 29

30 Black & Szado Number of Options Based Funds Grew from 10 to 119 Excerpted from 4-page Highlights of Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs (2015) at CBOE 30

31 Options-Based Funds and Stock Indices Cumulative Growth of $100 (Jan. 1, 2000 to Dec. 31, 2014) Exhibit 2: Cumulative monthly total return since January 1, 2000 for a monthly rebalanced equally weighted portfolio of Options-Based Funds, the BXM index and various traditional indices. Performance is scaled to represent a starting value of $100 at the market close on December 31, 1999 for all indices. Performance of the Equally Weighted Option-Based Fund Portfolio closely tracks the BXM index. The Equally Weighted Option-Based Fund Portfolio returns are calculated by averaging the returns across all constituents in the sample available at each month-end. The number of funds included in the calculation grows monthly as new funds enter the sample. Sources: Bloomberg and Morningstar "Performance Analysis of Options Based Equity Mutual Funds, CEFs, and ETFs (January 2015) Please see the last slide for important disclosures. CBOE 31

32 Exhibit 4: In addition, Options-Based Funds had a lower standard deviation than the S&P 500 Index Sources: Morningstar and Bloomberg. "Performance Analysis of Options Based Equity Mutual Funds, CEFs, and ETFs (January 2015) Please see the last slide for important disclosures. CBOE 32

33 Thank You CBOE s Options Benchmark Indexes > Manage Portfolio Volatility > Generate Premium Income > Potentially Enhance Risk-adjusted Returns CBOE 33

34 Appendix 1 - Annual Returns - Options-Selling and Benchmark Indices Year S&P 500 CBOE S&P 500 Iron Butterfly Index (BFLY) CBOE S&P 500 BuyWrite Index (BXM) CBOE S&P Delta BuyWrite Index (BXMD) CBOE S&P 500 Covered Combo Index (CMBO) CBOE S&P 500 Iron Condor Index (CNDR) CBOE S&P 500 PutWrite Index (PUT) MSCI EAFE US$ S&P GSCI Citigroup 30 Yr Treasury Bond % -4.6% -3.0% -0.2% -0.7% -4.0% -2.6% 24.6% 23.8% -8.0% % 9.4% 21.0% 22.8% 22.1% 16.4% 19.7% 28.3% 27.9% 8.1% % 15.0% 25.0% 32.7% 27.9% 20.3% 24.6% 10.5% 38.3% 20.3% % 8.9% 4.0% 3.9% 5.8% 9.7% 8.9% -23.4% 29.1% 4.8% % 33.5% 24.4% 23.5% 24.0% 17.0% 21.3% 12.1% -6.1% 17.3% % 13.8% 11.5% 10.8% 12.4% 13.4% 13.8% -12.2% 4.4% 6.8% % 21.2% 14.1% 11.1% 12.9% 14.0% 14.1% 32.6% -12.3% 18.3% % 4.2% 4.5% 5.5% 5.6% 14.1% 7.1% 7.8% 5.3% -11.9% % 0.8% 21.0% 32.9% 23.3% 9.4% 16.9% 11.2% 20.3% 33.5% % 5.1% 15.5% 19.2% 17.7% 11.3% 16.4% 6.0% 33.9% -4.4% % 15.7% 26.6% 33.7% 27.2% 9.8% 27.7% 1.8% -14.1% 15.4% % 6.3% 18.9% 22.4% 17.9% 1.7% 18.5% 20.0% -35.7% 16.5% % 18.9% 21.2% 21.2% 19.1% 13.5% 21.0% 27.0% 40.9% -14.9% % 19.3% 7.4% 0.1% 6.0% 20.8% 13.1% -14.2% 49.7% 20.0% % -3.3% -10.9% -8.9% -10.7% -4.9% -10.6% -21.4% -31.9% 3.4% % 6.2% -7.6% -13.2% -8.8% 0.1% -8.6% -15.9% 32.1% 16.2% % 4.1% 19.4% 25.9% 22.4% 7.5% 21.8% 38.6% 20.7% 0.8% % 4.9% 8.3% 10.4% 9.5% 10.1% 9.5% 20.2% 17.3% 8.7% % 5.3% 4.2% 5.0% 4.4% 10.0% 6.7% 13.5% 25.6% 8.8% % 15.6% 13.3% 17.8% 14.1% 13.7% 15.2% 26.3% -15.1% -1.1% % 6.6% 6.6% 6.2% 5.5% 4.9% 9.5% 11.2% 32.7% -0.8% % -5.3% -28.7% -31.3% -30.2% -4.0% -26.8% -43.4% -46.5% 41.3% % 15.7% 25.9% 32.1% 28.5% 12.6% 31.5% 31.8% 13.5% -25.9% % -12.9% 5.9% 11.2% 7.7% -4.9% 9.0% 7.8% 9.0% 8.7% % 4.2% 5.7% 7.3% 6.4% 1.7% 6.2% -12.1% -1.2% 35.4% % -13.2% 5.2% 11.0% 7.5% -3.0% 8.1% 17.3% 0.1% 2.4% % -11.6% 13.3% 19.1% 16.4% -0.7% 12.3% 22.8% -1.2% -15.0% % 0.3% 5.6% 6.2% 5.5% -5.2% 6.4% -4.9% -33.1% 29.3% % 4.8% 5.2% 4.0% 4.3% 5.8% 6.4% -0.8% -32.9% -3.1% Exhibit 11: This exhibit provides annual returns for each year since 1987 of Options-selling and traditional indices. While the Options-selling indices generally underperform the S&P 500 in years when the S&P 500 has very strong performance, they tend to have more favorable returns in years in which the S&P 500 is flat or experiences losses. Source: Bloomberg. Performance Analysis of CBOE S&P 500 Options Selling Indices (January 2016) Please see the last slide for important disclosures. CBOE 34

35 Appendix 2: Summary Statistics Options-Selling and Benchmark Indices (July 1986 to December 2015) July 1986 to December 2015 S&P 500 CBOE S&P 500 Iron Butterfly Index (BFLY) CBOE S&P 500 BuyWrite Index (BXM) CBOE S&P Delta BuyWrite (BXMD) CBOE S&P 500 Covered Combo Index (CMBO) CBOE S&P 500Iron Condor Index (CNDR) CBOE S&P 500 PutWrite Index (PUT) MSCI EAFE US$ Exhibit 6: The return and risk of Options-selling indices generally compare favorably to long-only equity indices both from the perspective of absolute returns and risk-adjusted returns. The Stutzer Index and Sortino ratio compensate for non-normal return distributions. Source: Bloomberg. S&P GSCI Citigroup 30-yr Treasury Bond 1 Month Tbill Yield Annualized Return 9.85% 5.96% 8.88% 10.66% 9.55% 7.09% 10.13% 6.28% 3.52% 7.05% 3.27% Average Monthly Return 0.88% 0.53% 0.76% 0.92% 0.82% 0.60% 0.85% 0.64% 0.47% 0.63% 0.27% Standard Deviation 15.26% 10.77% 10.85% 13.18% 11.17% 7.23% 10.16% 17.48% 20.69% 12.26% 0.70% Auto-correlation Maximum Drawdown % % % % % % % % % % % -5.34% % % % -3.99% % % % 41.27% 1.35% Skew Kurtosis Jensen's Annual Alpha 0.00% 2.20% 1.25% 1.74% 1.64% 2.66% 2.88% -1.50% 0.73% 4.88% -0.01% Leland's Annual Alpha 0.00% 2.00% 1.03% 1.62% 1.44% 2.37% 2.61% -1.57% 0.43% 4.95% -0.01% Beta Leland's Beta Treynor Ratio Annual Sharpe Ratio Sortino Ratio Stutzer Index Correlation with S&P Semi standard deviation* 11.67% 7.62% 8.76% 10.30% 9.02% 6.23% 8.45% 12.92% 14.93% 8.47% 0.50% M % 7.69% 11.55% 12.30% 12.20% 11.48% 13.73% 7.09% 4.99% 8.64% 3.22% *Below mean Performance Analysis of CBOE S&P 500 Options Selling Indices (January 2016) Please see the last slide for important disclosures. CBOE 35

36 Appendix 3A 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 CBOE 36

37 Appendix 3B 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 CBOE 37

38 Appendix 3C 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. CBOE 38

39 More Information Benchmark indexes and Consultants Papers at Disclosures. Chicago Board Options Exchange (CBOE ) provided financial support for the research for the papers by Wilshire, FEG and Oleg Bondarenko. 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. Copies are available from your broker or from The Options Clearing Corporation at The information in this presentation is provided for general education and information purposes only. No statement within this presentation should be construed as a recommendation to buy or sell a security or to provide investment advice. The CBOE strategy benchmark indexes (the Indexes ) are designed to represent proposed hypothetical options strategies. The actual performance of investment vehicles such as mutual funds or managed accounts can have significant differences from the performance of the Indexes. Investors attempting to replicate the Indexes should discuss with their advisors possible timing and liquidity issues. Like many passive benchmarks, the Indexes do not take into account significant factors such as transaction costs and taxes. Transaction costs and taxes for strategies such as the Indexes could be significantly higher than transaction costs for a passive strategy of buying-and-holding stocks. Investors should consult their tax advisor as to how taxes affect the outcome of contemplated options transactions. Past performance does not guarantee future results. This presentation contains index performance data based on back-testing, i.e., calculations of how the index might have performed prior to launch. Back-tested performance information is purely hypothetical and is provided in this presentation solely for informational purposes. Back-tested performance does not represent actual performance and should not be interpreted as an indication of actual performance. No representation is being made that any investment will or is likely to achieve a performance record similar to that shown. It is not possible to invest directly in an index. CBOE calculates and disseminates the Indexes. The methodologies of the Indexes are the property of Chicago Board Options Exchange, Incorporated (CBOE). CBOE, Chicago Board Options Exchange, CBOE Volatility Index and VIX are registered U.S. trademarks and BXM, BXD, BXMC, BXMD, BXMW, BXN, BXR, BXRC, BXRD, BXY, CLL, CLLR, CLLZ, PUT, PUTR, WPUT, WPTR, CMBO, BFLY, CNDR, RXM, SMILE, PPUT, VPD, VPN, VXTH, LOVOL, VSTG, SPRO, SPEN, BuyWrite, and PutWrite are service marks of CBOE. S&P and S&P 500 are registered trademarks of Standard and Poor's Financial Services, LLC and are licensed for use by CBOE. Financial products based on S&P indices are not sponsored, endorsed, sold or promoted by Standard & Poor s, and Standard & Poor s makes no representation regarding the advisability of investing in such products. Russell, Russell 1000 an Russell 2000 are registered trademarks of the Frank Russell Company, used under license. MSCI, and the MSCI index names are service marks of MSCI Inc. or its affiliates and have been licensed for use by CBOE. All other trademarks and service marks are the property of their respective owners. Your use of, and access to, this presentation is subject to the Terms and Conditions for Use of CBOE Websites located at Redistribution, reproduction and/or photocopying in whole or in part are prohibited without the written permission of CBOE. CBOE All Rights Reserved. CBOE 39