Cboe Global Markets

Two Cboe Indices Rose More Than 42% in 2023

Matt Moran
▬
January 2, 2024

This Index Insights Monthly Scorecard provides an update on the performance of dozens of indices that track the levels of volatility or the performance of hypothetical strategies that invest in options or futures.

Highlights:

  • Cboe’s VIX Premium Strategy Index (VPD) and Cboe’s S&P Technology Select Sector Half BuyWrite Index (BXLKH) Indices Both Rose More Than 42% in 2023
  • Smoother Returns for Cboe BXHB Fixed Income BuyWrite Index
  • Cboe Indices with 5-year gains of more than 88% include VPNSM, VXTHSM, SPENSM, and CALDSM
  • Peak 2023 Values for Volatility Indices in March after SVB Failure

VPD and BXLKH Indices Both Rose More than 42% in 2023

These two Cboe indices both hit all-time monthly closing highs at the end of 2023:

Source: Cboe Global Indices

  • The Cboe VPD Index tracks a hypothetical strategy that sells a sequence of monthly VIX futures and holds one-month Treasury futures. The VPD Index has the potential to do well in times when the VIX Index is in contango and the price of VIX futures is greater than the value of the VIX Index at the futures expiration date. Professor Edward Szado’s paper, Selling VIX® Futures and Options for Portfolio Return Enhancement, analyzed the VPD Index performance and noted that: “The term structure of VIX® futures is generally upward sloping. The persistent VIX contango may result in abnormally strong performance for VIX futures selling … strategies. However, the high volatility of volatility and significant jump risk may expose short uncovered VIX positions to extreme tail risk.”
  • The Cboe BXLKH Index tracks the performance of a hypothetical half-covered call strategy with long exposure to the S&P Technology Select Sector index (IXT) and the sale of the Information Technology Select Sector SPDR ETF (XLK) call option expiring monthly. In 2023 the BXLKH Index collected call options premium and participated in some of the upside for technology sector stocks, which attributed to its 42.5% rise. 

In 2023 the Cboe HYG BuyWrite Index (BXHB) rose 7.5%, tracked a strategy that collected options premiums, and had larger gains than the other two fixed income indices in the chart. The US Aggregate Bond Index rose 5.5%, and the 20+ Year U.S. Treasury Index rose 2.7. Additionally, the BXHB Index had smoother returns than the other two fixed income indices in the chart. The worst drawdowns from the beginning of the year (using daily closing values) were down 15.2% for the 20+ Year U.S. Treasury Index and down 3.4% for the US Aggregate Bond Index. The Cboe BXHB Index had no losses compared to its value at the beginning of the year.

Monthly Scorecard for 30 Indices

Some of the highest five-year gains for Cboe strategy indices in the table below include:

Volatility Indices Hit Peak in March after SVB Collapse

The collapse of Silicon Valley Bank (SVB) on March 10 and the beginning of the Israel-Hamas war on October 7 were two key events that potentially drove volatility indices higher in 2023. The first half of 2023 saw higher interest rates and several banking crises, including UBS’ buyout of Credit Suisse, and the collapse of SVB and First Republic Bank on May 1 — two of the three largest bank collapses in U.S. history. All three of these Cboe® volatility indices depicted in the chart below hit their highest daily closing values of the year in March, after the SVB failure.

The recently launched Cboe S&P 500 Dispersion Index (DSPX) is intended to help investors deploy dispersion strategies, which allow investors to model the impact of company-specific risk on a portfolio by measuring the variability of volatilities for single-name stocks relative to the volatility of the index itself. In 2023, the DSPX Index had an average daily closing value of 26.6, and its highest daily closing value was 32.51 on January 3, 2023.  

More Information

Learn more about Cboe Global Indices and related options and futures strategies at these links:

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