Miller presents research at national forum
Thomas W. Miller Jr.
The Options Industry Council (OIC) has released a new academic research study, “The Performance of Options-Based Investment Strategies: Evidence for Individual Stocks During 2003-2013,” co-authored by Thomas W. Miller Jr., a professor of finance and the Jack R. Lee Chair of Financial Institutions and Consumer Finance at Mississippi State University.
The study, which was supported by OIC, found that some options-based portfolio strategies seemingly outperform long stock and improve the risk-return tradeoff of long equity portfolios over time.
Miller and co-author Michael L. Hemler of University of Notre Dame presented the results of the study May 8 at the 2015 Financial Advisors Forum held in conjunction with the 33rd Annual Options Industry Conference in Miami Beach, Florida.
According to the OIC, this research is novel in that it compares the performance of several different options strategies, rather than a single strategy, using equity options. A distinctive feature of this study is its exploration of the covered combination strategy and early exercise. The study examined the relative performance of five different investment strategies, four options strategies and a long equity strategy, for individual stocks widely held in 401(k) plans from 2003 through 2013. The options strategies used in the study include the covered call, protective put, collar and covered combination. Of these five strategies, the covered combination, which is a multi-leg options strategy that combines the covered call and the cash-secured put, outperformed the others using four standard risk-adjusted performance measures: Sharpe ratio, Jensen’s alpha, Treynor ratio, and Sortino ratio.
The Options Industry Council (OIC) is an industry cooperative funded by the U.S. options exchanges and OCC, the world’s largest equity derivatives clearing organization and sole central clearing house for U.S. listed options. OIC's mission is to provide free and unbiased education to investors and financial advisors about the benefits and risks of exchange-traded equity options.
“We applaud the work of Professors Hemler and Miller to create greater awareness and understanding of how specific options strategies can be used to enhance investment returns as well as reduce risk in up, down, and flat markets,” said OCC Executive Vice President of Business Development Scot Warren. “OIC is proud to support this study and will use the research to further our efforts to educate financial advisors and investors about the benefits of options.”
To view the paper and presentation, please visit www.optionseducation.org/options_based_investment_strategies_2015.html.
