Systematic Options Strategies Linked to Regional Indexes
Research Paper
July 19, 2024
Preview
Options strategies are a flexible tool for managing risk and adding diversification in an investment portfolio. In this research paper, we focus on options strategies related to regional indexes, specifically the MSCI EAFE and MSCI Emerging Markets (EM) Indexes. We consider buy-write, put-write and protective-put strategies in three use cases: to explore the benefits of adding options positions to a balanced portfolio, help navigate equity-market drawdowns and summarize our earlier findings about options strategies' performance across various macroeconomic environments.
Our analysis of data spanning the last 18 years indicates that systematic options strategies linked to the MSCI EAFE and MSCI Emerging Markets Indexes have consistently exhibited lower risk and lower drawdowns compared to their parent indexes.
The following exhibit compares the three options strategies we analyzed in EM versus their parent index, the MSCI Emerging Markets Index.
Annualized risk and return of options strategies linked to the MSCI Emerging Markets Index
Data from March 31, 2006, to June 28, 2024. We use the MSCI Emerging Markets Sovereign Bond Index as a proxy for the EM fixed-income investment universe. Gross returns are in USD. Annualized risk is based on monthly returns. Source: Cboe
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