The Risk and Return Characteristics of the Buy-Write Strategy on the Russell 2000 Index

Kapadia, Nikunj; Szado, Edward

doi:10.3905/jai.2007.682735

Cited by 36 publications

(27 citation statements)

References 4 publications

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“…Given these two attractive components, the majority of the buy-write strategy (BWS) literature challenges the efficient market hypothesis of Fama (1970) and shows that it is possible to earn higher returns whilst simultaneously reducing risk. For instance, Hill and Gregory (2003), Whaley (2002), Feldman and Roy (2004), Hill et al, 2006, Kapadia andSzado (2007) demonstrate the success of the buy-write strategy in the US, and similar findings are observed in Switzerland 1 and Australia. 2 Board et al (2000) and Lhabitant (2000), on the other hand, argue otherwise, and Lhabitant (2000) concludes that further investigation of this product is necessary.…”

Section: Introductionmentioning

confidence: 85%

“…However, as the call options become deeper out-ofmoney, the benefits of the BWS are reduced as the hybrid product approximates the returns and risks of the physical stocks. Lhabitant (2000), Hill and Gregory (2003), Hill et al (2006), and Kapadia and Szado (2007) support the hypothesis that the level of out-of-moneyness affects the return of the BWS; however, there is no general consensus on the optimal level of out-of-moneyness. The remaining studies on BWS overlook the importance of the level of out-of-moneyness; wetherefore seek to analyse the impact of option out of moneyness.…”

Section: Introductionmentioning

confidence: 99%

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The efficiency of the buy-write strategy: Evidence from Australia

Mugwagwa

Ramiah

Naughton

et al. 2012

Journal of International Financial Markets, Institutions and Mo

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Section: Introductionmentioning

confidence: 85%

Section: Introductionmentioning

confidence: 99%

The efficiency of the buy-write strategy: Evidence from Australia

Mugwagwa

Ramiah

Naughton

et al. 2012

Journal of International Financial Markets, Institutions and Mo

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“…CSFB Equity Derivatives Strategy. 6 See for example Kapadia and Szado [2007] and Unger and Moran [2009] 6 provide significant diversification benefits in large downward moves of the market.…”

Section: Introductionmentioning

confidence: 99%

VIX Futures and options: A Case Study of Portfolio Diversification During the 2008 Financial Crisis

Szado¹

2009

JAI

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record is hypothetical and the portfolios have not been traded together in the manner shown in the composite. No representation is being made that any investment will or is likely to achieve a composite performance record similar to that shown. Unlike an actual performance record, hypothetical results do not represent actual trading. Also, since the performance presented does not represent an actual performance portfolio, there are numerous other factors related to the market in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. Past performance is not indicative of future results. I thank Matt Moran and participants at the 2009 CBOE Risk Management Conference and the ISOM University of Massachusetts Finance Seminar series for comments and suggestions and Christian Blanke for excellent research assistance. Please address correspondence to Edward Szado, CISDM,

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“…For instance, writing/buying calls and/or puts during periods of heightened market volatility may be particularly advantageous/disadvantageous for credit/debit condor spreads (McKeon, 2016;Niblock and Sinnewe, forthcoming). Outperformance/underperformance of the market (e.g., ASX 200 index) could also be explained by the potential overpricing of written/bought call and/or puts options during such periods (Figelman, 2008;Hill et al, 2006;Kapadia and Szado, 2007;McIntyre and Jackson, 2007;O'Connell and O'Grady, 2014;Simon, 2011Simon, , 2013.…”

Section: Resultsmentioning

confidence: 99%

Flight of the Condors: Evidence on the Performance of Condor Option Spreads in Australia

Niblock

2017

AFL

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Abstract:This paper examined whether superior nominal and risk-adjusted returns could be generated using condor option spread strategies on a large capitalized Australian stock. Monthly Commonwealth Bank of Australia Ltd (CBA) condor option spreads were constructed from 2012 to 2015 and their returns established. Standard and alternative measures were used to determine the nominal and risk-adjusted performance of the spreads. The results show that the short put condor spread produced superior nominal and risk-adjusted returns, but seemingly underperformed when the upside potential ratio was taken into consideration. The long iron condor spread also offered reasonable returns across both performance metrics. On the other hand, the short call condor, long call condor, short iron condor and long put condor spreads did not perform as well on a nominal and riskadjusted return basis. The results suggest that constructing spreads on the foundation of volatility preferences could be a driver of performance for condor option spreads strategies. For instance, short volatility condor spreads with negatively skewed return distribution shapes appear to add value, while long volatility condor spreads with positively skewed return distribution shapes seem to be less attractive over the sample period. Overall, condor option spreads demonstrate high risk-return profiles, offer versatility in their construction and intended pay-off outcomes, create value in some instances and can be executed across varying market conditions. It is suggested that risk averse investors best avoid condor option spreads, while those with above average risk tolerances may be well suited to the strategies, particularly short volatility-driven condor spreads.

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The Risk and Return Characteristics of the Buy-Write Strategy on the Russell 2000 Index

Cited by 36 publications

References 4 publications

The efficiency of the buy-write strategy: Evidence from Australia

The efficiency of the buy-write strategy: Evidence from Australia

VIX Futures and options: A Case Study of Portfolio Diversification During the 2008 Financial Crisis

Flight of the Condors: Evidence on the Performance of Condor Option Spreads in Australia

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