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The Options Industry Council (OIC) today announced that new research shows collar strategies provide portfolios with greater downside risk protection than standard multi-asset diversification programs, significantly reducing volatility, drawdowns and, in certain market environments, providing enhanced returns relative to a stand-alone investment.
In contrast to earlier studies which concentrated on equity markets, Edward Szado and Thomas Schneeweis of the University of Massachusetts provide extensive analysis of the performance of collar strategies over a diverse set of asset classes including equities, currencies, commodities, fixed income, and real estate in their recent research, Option-Based Risk Management in a Multi-Asset World. The research covers the period from June 1, 2007 to December 30, 2011, capturing both the financial crisis as well as the following market recovery.
An example of the benefit of an equity collar strategy can be seen with the analysis on the popular SPDR S&P 500 (SPY) ETF. Over the study period, the 2% out-of-money SPY collar returned over 22% while the long SPY experienced a loss of over 9%. The collar earned its superior returns with less than half the risk as measured by the standard deviation (8.4% for the collar versus 19.5% for SPY).
The expanded findings are a continuation of one in a series of studies intended for institutional investors which evaluate the performance of different options strategies on different contracts over specific time periods. By supporting these studies in conjunction with well-respected research and educational institutions, OIC remains committed to its mission of providing education and research to institutional investors. These studies show the importance of options in attaining investment goals.
To access the OIC summary, visit:http://www.optionseducation.org/content/dam/oic/documents/literature/files/options-based-risk-mgmt-summary.pdf
To access the complete research, visit:http://www.optionseducation.org/content/dam/oic/documents/literature/files/options-based-risk-mgmt.pdf
