Abstract
Oyster describes the Volatility Risk Premium (VRP) as perhaps the most significant, untapped resource available to investors today. One means of monetizing that premium is through a put option spread strategy that forms the basis for an index Oyster developed, known as the Options Income Index (OICX). The OICX is a passive, rules-based strategy for monetizing the VRP that seeks equity-like returns with less risk. Oyster analyzes the historical returns of the OICX noting its design produced greater consistency in performance, lower stock market beta, and smaller maximum drawdowns relative to other volatility indexes. The OICX employs a dynamically adaptive strike placement methodology that helps smooth returns as well as a risk-management contingency function that helps limit drawdowns during periods of stress.
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Notes
- 1.
Sourced from Cboe SPX options fact sheet. Investors should consult with their tax advisors to determine how the profit and loss on any particular option strategy will be taxed. Tax laws and regulations change from time to time and may be subject to varying interpretations.
- 2.
Kolb, Robert W., Futures, Options, & Swaps, Third edition, Blackwell Publishers Inc., 1999, p. 425.
- 3.
Feldman, Barry and Roy, Dhruv, “Passive Options-based Investment Strategies: The Case of the CBOE S&P 500 BuyWrite Index,” Ibbotson Associates, July 28, 2004, p. 20.
- 4.
Williams, Michael and Hoffman, Amy, Fundamentals of the Options Market, McGraw-Hill, 2000.
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Bondarenko, Oleg. “Analysis of Index Option Writing with Monthly and Weekly Rollover,” University of Chicago. 2016. 5.
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Bollen, Nicolas P.B, Whaley Robert E, “Does Net Buying Pressure Affect the Shape of Implied Volatility Functions?” The Journal of Finance Vol LIX, No. 2. April 2004.
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Oyster, M.J. (2018). The Options Income Index. In: Success in a Low-Return World. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-99855-8_18
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DOI: https://doi.org/10.1007/978-3-319-99855-8_18
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