Performance Analysis of Options-Based Equity Mutual Funds, Closed-End Funds, and Exchange-Traded Funds

Abstract

Mutual fund managers may implement a variety of trading strategies using exchange-traded equity and equity index options. These strategies predominately include covered calls, wherein call options are sold against long positions, and put writes, wherein put options are sold against cash collateral. Previously, the literature has documented superior risk-adjusted performance of mechanical index strategies, such as the Chicago Board Options Exchange (CBOE) S&P 500 Buy-Write Index (BXM) and the CBOE S&P 500 Put-Write Index (PUT). This study documents strong risk-adjusted performance of a large sample of listed funds, which earned similar returns to the S&P 500 Index from 2000 through 2014, with substantially less risk as measured by standard deviation or beta. While the performance of the BXM is stated before fees, the sample of options-based funds outperformed BXM after fees over the sample period.