Can the improved CMBO strategies beat the CMBO index?

Liu，Wei Han1; Chang，Jow Ran2

2021-03-01

10.3905/JOD.2020.1.121

Journal of Derivatives   影响因子和分区

1074-1240

The authors aim to improve the CMBO strategy, a covered-call strategy based on the Chicago Board of Exchange Covered Combo (CMBO) Index. They modify the major issues that determine risk and return: aggregate market status and the degree of moneyness of options. The empirical analyses indicate that the four CMBO strategy portfolios they designed, with their respective degrees of moneyness of options, provide a higher return than the S&P 500 Index in ordinary and bearish markets but not in a bullish market because of its short volatility. They evidentially confirm the role of the degree of moneyness of options. A higher degree for an out-of-the-money (OTM) option produces the following observations: (1) a lower probability of exercising both call and put in the portfolio and (2) a higher overall risk-adjusted performance. The Chicago Board of Exchange may consider issuing other types of CMBO indexes with higher-degree OTM options for purposes of hedging and investment. They especially recommend their 5% OTM CMBO portfolio, based on the high values of its Sharpe and Sortino ratios. Its outperformance is sustained across different market conditions.

Derivatives Options Portfolio construction*

SSCI

英语

第一

WOS:000639693500008

2-s2.0-85103500247

Scopus

1.Southern University of Science and Technology,Guangdong,China
2.National Tsing Hua University,Hsinchu,Taiwan

Liu，Wei Han,Chang，Jow Ran. Can the improved CMBO strategies beat the CMBO index?[J]. Journal of Derivatives,2021,28(3):163-183.

Liu，Wei Han,&Chang，Jow Ran.(2021).Can the improved CMBO strategies beat the CMBO index?.Journal of Derivatives,28(3),163-183.

Liu，Wei Han,et al."Can the improved CMBO strategies beat the CMBO index?".Journal of Derivatives 28.3(2021):163-183.