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New Academic Research Finds Options-Based Investment Strategies Outperform Long Stock Strategy

  • Covered Combination Strategy Yields Highest Performance Over 10-year Period
May 08, 2015
Chicago -

The Options Industry Council announced today the release of a new academic research study, “The Performance of Options-Based Investment Strategies: Evidence for Individual Stocks During 2003-2013," conducted by Professors Michael L. Hemler, University of Notre Dame's Mendoza College of Business, and Thomas W. Miller, Jr., Mississippi State University. The study, which was supported by OIC, found that some options-based portfolio strategies seemingly outperform long stock and improve the risk-return tradeoff of long equity portfolios over time. The authors presented the results of the study today at the 2015 Financial Advisors Forum held in conjunction with the 33rd Annual Options Industry Conference taking place this week in Miami Beach, Florida.

This research is novel in that it compares the performance of several different options strategies, rather than a single strategy, using equity options. A distinctive feature of this study is its exploration of the covered combination strategy and early exercise. The study examined the relative performance of five different investment strategies, four options strategies and a long equity strategy, for individual stocks widely held in 401 plans from 2003 through 2013. The options strategies used in the study include the covered call, protective put, collar and covered combination. Of these five strategies, the covered combination, which is a multi-leg options strategy that combines the covered call and the cash-secured put, outperformed the others using four standard risk-adjusted performance measures: Sharpe ratio, Jensen’s alpha, Treynor ratio, and Sortino ratio.

“We applaud the work of Professors Hemler and Miller to create greater awareness and understanding of how specific options strategies can be used to enhance investment returns as well as reduce risk in up, down, and flat markets,” said Scot Warren, OCC Executive Vice President of Business Development and OIC. “OIC is proud to support this study and will use the research to further our efforts to educate financial advisors and investors about the benefits of options.”

 

About OIC - The Options Industry Council is an industry cooperative funded by the U.S. options exchanges and OCC, the world's largest equity derivatives clearing organization and sole central clearing house for U.S. listed options. OIC's mission is to provide free and unbiased education to investors and financial advisors about the benefits and risks of exchange-traded equity options. Managed by OCC, OIC delivers its education through the Options Education Program, a structured platform offering live seminars, self-directed online courses, mobile tools, podcasts, webinars and live help. OIC's resources can be accessed online at OptionsEducation.org, via mobile app for iOS, or by phone at 1-888-OPTIONS.

This web site discusses exchange-traded options issued by The Options Clearing Corporation. No statement in this web site is to be construed as an endorsement, recommendation or solicitation to purchase or sell a security, or to provide investment advice. Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of the disclosure document, Characteristics and Risks of Standardized Options. Individuals should not enter into option transactions until they have read and understood this document. To obtain copies, contact your broker, any exchange on which options are traded, or The Options Clearing Corporation, 125 S. Franklin Street, Suite 1200, Chicago, IL 60606 ([email protected]).