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A half-day seminar presented to the Hong Kong Society of Financial Analysts by Bud Haslett and Matt Moran
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Using Options for Risk Management and to Enhance Income and Risk-adjusted Returns
For the Hong Kong Society of Financial AnalystsSaturday, 30th August 2008 9:30 a.m. – 12:00 noon
HKUST Business School Central15th Floor, The Hong Kong Club Building
3A Chater Road, Central, Hong Kong
Presentations by:
Bud Haslett, CFA, FRMChief Executive OfficerMiller Tabak Capital ManagementNew York
and
Matt Moran, JDVice PresidentChicago Board Options Exchange®Chicago
2Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Topics to Be Covered1. Historical Price Changes2. Worldwide Derivatives Markets – OTC and Exchange-Listed3. Detailed Analysis of Options, Including Inputs to Pricing, and
Evaluation of Risk Determinants (the "Greeks")4. Strategies to Lower Portfolio Volatility – Protective Puts,
BuyWrites, Collars, and others5. Benchmark Indexes for Strategies to Lower Portfolio
Volatility – BXM, BXY, PUT, etc.6. Benchmark Indexes for Volatility-based Strategies – VIX,
VPD, OVX, etc.7. Volatility-based Strategies8. Conclusion
3Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
1. Historical Price Changes
4Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
One-Year Change in Select Equity Prices(July 31, 2007 - July 31, 2008)How can diversification and risk management help investors?
0%10%20%30%40%50%60%70%80%90%
100%110%120%130%
31-Jul-07
31-Oct-07
31-Jan-08
30-Apr-08
31-Jul-08
% Change in stock prices (without reinvested dividends) and in Russell 3000 total return index. Sources: CBOE and Bloomberg.
Dai
ly C
losi
ng P
rices
, re-
scal
ed to
100
% o
n Ju
ly 3
1, 2
007 Down 11% S&P 500 TR
Down 66% GM
Down 60% Citigroup
0% Southwest Air
Down 63% American Air
Down 81% United Air
5Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Financial Times July 25, 2008Southwest Airlines' Fuel Hedging Boosts Profits
“… Southwest Airlines reported a higher quarterly profit, as hedges locked in most of the low-cost US carrier's jet-fuel expenses well below market prices. Derivatives contracts pinned 80 per cent of Southwest's fuel bill at the average equivalent price of $61 a barrel for crude oil, a commodity whose surge has overwhelmed US airlines and forced them to make unprecedented service cuts, slash jobs and retire older aircraft.… Alaska Air Group, another US carrier that has mimicked Southwest's fuel strategy, also posted a quarterly profit that exceeded analysts' expectations. Favourable settlements from Southwest's fuel hedges added $511m to the airline's quarterly results. Revenue rose 11 per cent to $2.87bn. Southwest's derivatives through 2012 are valued at about $4.3bn, and cover 80 per cent of its fuel bill for the second half of 2008 and 70 per cent of next year's expected costs. …”
6Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Exchange-Traded Funds (ETFs)Prices Since August 2005
0
50
100
150
200
Aug-05
Aug-06
Aug-07(Aug. 2005 - July 2008) Source: Bloomberg
Mon
th-e
nd P
rices
FXE
SPY
USO
TLT
GLD
EEM
Symbol ETF
July 2008 CBOE Options Avg. Daily Volume.
FXE CurrencyShares Euro Trust 795
SPY S&P Depositary Receipts (SPDRs) 443,221
USO United States Oil Fund 20,638
TLT iShares Lehman 20+Year Treasury Bond Fd 2,916
GLD SPDR Gold Trust 30,925
EEM iShares MSCI Emerging Markets Index 43,155
7Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Select Indexes Since Dec. 1998
0%
50%
100%
150%
200%
250%
300%
350%
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
(Dec. 1998 - June 2008) All indexes are total return indexes, re-scaled to 100% as of Dec. 1998. Country indexes are in
local currencies. Sources: CBOE and Bloomberg
Re-
scal
ed m
onth
-end
pric
es MSCI Hong Kong
MSCI World US$
S&P 500
8Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
One-Year Change in Select Indexes(July 31, 2007 - July 31, 2008)How can diversification and risk management help investors?
70%
80%
90%
100%
110%
120%
130%
31-Jul-07
31-Oct-07
31-Jan-08
30-Apr-08
31-Jul-08
All indexes are net total return indexes in local currencies, except that the MSCI World Index is in US $. Sources: CBOE and Bloomberg.
Dai
ly C
losi
ng P
rices
, re-
scal
ed to
100
% o
n Ju
ly 2
3, 2
007
Down 5% MSCI Hong Kong
Down 11% MSCI World
9Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
One-Year Change in Select Indexes How can diversification and risk management help investors?
80%
90%
100%
110%
31-Jul-07
30-Sep-07
30-Nov-07
31-Jan-08
31-Mar-08
31-May-08
31-Jul-08
(July 31, 2007 - July 31, 2008) Sources: CBOE and Bloomberg.
Dai
ly C
losi
ng P
rices
, re-
scal
ed to
100
%
on J
uly
23, 2
007
Down 11% S&P 500 (TR)
Up 4% PUT
Down 1% BXM
10Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
One-Year Change in Select Index Prices CBOE Lehman 5-Month Constant Maturity VIX Futures Index (VWX)CBOE VIX Premium Strategy Index (VPD)CBOE Capped VIX Premium Strategy Index (VPN)
70%
80%
90%
100%
110%
120%
130%
140%
31-Jul-07
30-Sep-07
30-Nov-07
31-Jan-08
31-Mar-08
31-May-08
31-Jul-08
(July 31, 2007 - July 31, 2008) Sources: CBOE and Bloomberg.
Dai
ly C
losi
ng P
rices
, re-
scal
ed to
100
%
on J
uly
23, 2
007
Down 11% S&P 500 (TR)
Up 14% VWX
Up 6% VPDUp 3% VPN
11Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
2. Worldwide Derivatives Markets – OTC and Exchange-Listed
12Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Worldwide Derivatives$677 Trillion in Worldwide Derivatives
$0$100,000$200,000$300,000$400,000$500,000$600,000$700,000
Dec.2000
Dec.2001
Dec.2002
Dec.2003
Dec.2004
Dec.2005
Dec.2006
Dec.2007
Notional Principal in $US Billions - Amounts Outstanding Source: BIS
O-T-C Derivatives
Exchange-listedOptionsExchange-listedFutures
13Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
O-T-C Derivatives$596 Trillion Notional in Dec. 2007
Notional principal in US $ Billions – amounts outstanding. Source: BIS
$0
$200,000
$400,000
$600,000
Dec.2000
Dec.2001
Dec.2002
Dec.2003
Dec.2004
Dec.2005
Dec.2006
Dec.2007
Unallocated
Credit default swaps
Commodity contracts
Equity-linked contracts
Interest rate contracts
Foreign exchangecontracts
14Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
O-T-C Equity Forwards & Swaps
Notional principal in US $ Billions – amounts outstanding. Source: BIS
O-T-C Equity Forwards & Swaps $2.2 Trillion Notional
$0
$1,000
$2,000
$3,000
Dec.2000
Dec.2001
Dec.2002
Dec.2003
Dec.2004
Dec.2005
Dec.2006
Dec.2007
AsianEuropean US Latin American Other
15Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
O-T-C Equity Options
Notional principal in US $ Billions – amounts outstanding. Source: BIS
O-T-C Equity Options$6.3 Trillion Notional
$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000
Dec.2000
Dec.2001
Dec.2002
Dec.2003
Dec.2004
Dec.2005
Dec.2006
Dec.2007
AsianEuropean US Latin American Other
16Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Exchange-listed
Equity Index Futures
Notional principal in US $ Billions – amounts outstanding. Source: BIS
Exchange-listed Equity Index Futures$1.1 Trillion Notional
$0
$600
$1,200
Dec.2000
Dec.2001
Dec.2002
Dec.2003
Dec.2004
Dec.2005
Dec.2006
Dec.2007
Asia and Pacific
Europe
North America
Other Markets
17Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Exchange-listed
Equity Index Options
Notional principal in US $ Billions – amounts outstanding. Source: BIS
Exchange-listed Equity Index Options$8.1 Trillion Notional
$0
$3,000
$6,000
$9,000
Dec.2000
Dec.2001
Dec.2002
Dec.2003
Dec.2004
Dec.2005
Dec.2006
Dec.2007
Asia and Pacific
Europe
North America
Other Markets
18Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Leading Futures and Options ExchangesJanuary – May 2008
1,748,6331,756,4782,061,909
4,075,5414,369,7844,531,367
9,096,3609,119,227
12,412,577
NYMEX
Natl SE of India
PHLX
ISE
CBOE
LIFFE
Korea Exchange
Eurex
CME Group
Avg. Daily Volume - Preliminary Estimates Based on 104 Trading Days. Sources: CBOE and FIA.
19Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Select Options & Futures
643,173
797,215
1,646,446
2,291,626
2,981,842
8,787,780
S&P 500 Index Options(CBOE)
5 Year Treasury Note (CME)
DJ Euro Stoxx 50 Index(Eurex)
E-mini S&P 500 Index (CME)
Eurodollar Futures (CME)
Kospi 200 Options (KoreaExchange)
January - May 2008 - Avg. Daily Volume - Preliminary Estimates. Sources: CBOE and FIA.
20Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Growth in Volume in Options and Futures on U.S. Exchanges28.3 million avg. daily volume in Jan.-May 2008
0
10,000,000
20,000,000
30,000,000
2000
2001
2002
2003
2004
2005
2006
2007
Jan-May
2008
Sources: FIA and CBOE
U.S. Options on Securities (SEC)U.S. Options on Futures (CFTC)U.S. Futures (CFTC)
21Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Growth in CBOE Options Volume
4,462,075
3,762,836
2,688,189
1,061,9701,126,772
1,432,8841,858,132
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
2002 2003 2004 2005 2006 2007 JanJun08
Avg
. Dai
ly V
olum
e at
CB
OE
SEC-regulated listed options are cleared and guaranteed by the AAA-rated Options Clearing Corporation.
22Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Leading CBOE Index and ETF Options
25,595
26,066
40,896
52,240
58,954
99,561
268,858
309,215
326,248
627,236
Nasdaq-100 (NDX)
Dow (DJX)
Dow Diamonds (DIA)
S&P 100 (OEX)
Russell 2000 (RUT)
CBOE Volatility Index (VIX)
PowerShares Nasdaq-100 (QQQQ)
iShares Russell 2000 (IWM)
SPDRs (SPY)
S&P 500 (SPX)
Average Daily Volume in January-June, 2008. Source: CBOE.
23Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Select O-T-C Derivatives –
Credit Default Swapsand Equity-linked Derivatives
$58 Trillion in Credit Default Swaps
$0$10,000$20,000$30,000$40,000$50,000$60,000$70,000$80,000
Dec.2000
Dec.2001
Dec.2002
Dec.2003
Dec.2004
Dec.2005
Dec.2006
Dec.2007
Notional Principal in $US Billions - Amounts Outstanding Source: BIS
Credit Default Swaps(O-T-C)Equity-linked O-T-CDerivatives
24Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Credit Event Binary Options (CEBOs)Credit Event Binary Options (CEBOs) are the CBOE’s translation of credit default swaps (CDS) to a regulated and centralized marketplaceCEBOs pay a fixed amount if a credit event is confirmed in a reference entity.
Payment is made at the time of the credit eventCEBOs expire worthless if no credit event is confirmed before expiration
Contract’s value can fluctuate significantly as perceptions of credit quality change
‘Credit Event’:BankruptcyFailure to pay
Contract specifications inspired by language from the 2003 ISDA credit derivatives definitions
25Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
3. Detailed Analysis of Options, Including Inputs to Pricing, and Evaluation of Risk Determinants (the "Greeks")
26Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Exchange Listed Equity OptionsCalls – Right to buy stock at certain price for certain periodPuts – Right to sell stock at certain price for certain periodUsually represents 100 sharesLimited life – usually expires after third FridayOption Info – 200 DD Jan 50 calls for 1.55
Number of contractsUnderlying SecurityExpiration DateStrike priceCall / PutPremium
One or more can be combined with a stockTwo or more can be combined in a spread
27Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Option Terms to KnowPremium – price paid for the option
($1.55 times 20,000 shares = $31,000)
Intrinsic Value – Parity value of option
Time Premium – Premium minus parity
In-the-money (ITM)– option with parity value
Out-of-the-money (OTM)– option with only time premium
Historical Volatility – past movements
Implied Volatility – anticipated movements in the future
28Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Increase in: Calls PutsStock Price +(direct) -(inverse)Interest Rates +(direct) -(inverse)
Strike Price -(inverse) +(direct)Dividends -(inverse) +(direct)
Time to Expiration* +(direct) +(direct)Volatility +(direct) +(direct)
* For all scenarios except deep in-the-money European style puts
Inputs to Option Pricing
29Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Inputs to Option Pricing
Decrease in: Calls PutsStock Price -(direct) +(inverse)Interest Rates -(direct) +(inverse)
Strike Price +(inverse) -(direct)Dividends +(inverse) -(direct)
Time to Expiration* -(direct) -(direct)Volatility -(direct) -(direct)
* For all scenarios except deep in-the-money European style puts
30Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Foundation for Option AnalysisReview of the “Greeks”
Delta – change in value based on stockGamma – change in delta based on stockTheta – change in value based on timeVega – change in value based on volatility
31Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Delta – price movement in the option based on a small movement in the stock
Commonly called the Hedge RatioSimilar to a bond’s DurationCalls positive delta - Puts negative deltaDelta ranges from 0 to 100 (.00 to 1.00)At-the-money has around a 50 deltaAlso dependent upon time, volatility, ratesTHINK OF DELTA AS PERCENTAGE CHANCE THE OPTION WILL FINISH IN-THE-MONEY
Foundation for Option Analysis
32Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
How Delta Changes – 118 Days
33Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
How Delta Changes – 15 Days
34Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Foundation for Option AnalysisGamma – change in option’s delta based upon movement in the stock
The Delta of the DeltaSimilar to a bond’s convexityHighest before expiration for at-the-moneyLower away from the strike price Lower more time until expirationGamma tied to time decay and volatilityLong an option (Put or Call) = Long GammaShort an option (Put or Call) = Short Gamma
35Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Foundation for Option AnalysisTheta – time decay in the option
Options are wasting assetsGradually lose their time premiumLong options = negative decayShort options = positive decay
Vega – change in option’s price based on change in volatility
Long options = Long VegaShort Option = Short Vega
36Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Theta – 118 to 15 Days
37Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Vega – 21 to 41 Volatility
38Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
What is the Key to Options?
All of these factors happen at the same time
DeltaGamma ixzt
Theta
Understanding…
39Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Take risk-modified and leveraged directional exposures
Provide downside protection
Enhance Returns
Options Provide an Effective Way to:
40Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Directional Exposures - Price
May be as simple as buying calls or puts
41Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Directional Exposures - Price
Or more sophisticated like using spreads
42Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Directional Exposures
Or contain strategies with calls and puts
43Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
4. Strategies to Lower Portfolio Volatility – Protective Puts, BuyWrites, Collars, and Collateralized Short Puts
44Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Downside Protection – Many Types1. Protective Put
2. Collar
3. Bear Put Spread*
4. Bear Call Spread*
5. Combination Bear Spread*
6. Put Spread Collar*
7. VIX Call Options** Limited Downside Protection
45Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Downside Protection
The most popular methods
46Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Have We Seen These Before?
47Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Downside Protection
Bear Put Spread – Pay for (Debit)Bear Call Spread – Receive (Credit)Combined into a low cost bearish position
48Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Downside Protection - Hybrids
Put Spread CollarAdd sale of OTM put to collarUse proceeds of sale to “buy-up” strike price of long put or short call
VIX Call PurchaseNegative correlation with equity prices provides hedging value
49Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Enhancing Returns
Covered Call the most popularAppears easy on the surfaceEffective adjustment strategy is critical
50Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
5. Benchmark Indexes for Strategies to Lower Portfolio Volatility – BXM, BXY, PUT, etc.
51Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Key Performance Benchmark Indexes
www.cboe.com/PUTJune 1, 19882007PUTCBOE S&P 500
PutWrite
www.cboe.com/BXNDec. 30, 19942005BXNSMCBOE
NASDAQ-100 BuyWrite
www.cboe.com/BXYJune 1, 19882006BXYSMCBOE S&P 500
2% OTMBuyWrite
www.cboe.com/BXRDec. 29, 20002006BXRSMCBOE Russell
2000 BuyWrite
www.cboe.com/BXDOct. 16, 19972005BXDSMCBOE DJIA
BuyWrite
www.cboe.com/BXMJune 30, 19862002BXMSMCBOE S&P
500 BuyWrite
WebsiteData beginningIntroducedTickerIndex
52Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
CBOE S&P 500 BuyWrite Index (BXM)Benchmark for strategy --
buy portfolio of S&P 500 stockswrite (sell) cash-settled S&P 500 Index options every 3rd Friday for income
Announced in 2002Data history back to June 30, 1986“Innovative Index of the Year” in 2004More than $30 billion in buywrite fundswww.cboe.com/BXM
53Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
CBOE S&P 500 PutWrite Index (PUT)
Benchmark index, announced in June 2007, with price history back to June 1988. CBOE is publishing daily closing price data.Bloomberg ticker is PUT [Index]PUT strategy is designed to sell a sequence of one-month, at-the-money, S&P 500 Index puts and invest cash at one- and three-month Treasury Bill rates.PUT won Innovative Index of the Year Award at Super Bowl of Indexingwww.cboe.com/PUT
54Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Indexes Since June 1986 $8.71 BXM
$8.43 S&P 500
$5.98 - MSCI World (in $)
$-$1$2$3$4$5$6$7$8$9
$10$11
30-Jun-86
30-Jun-93
06/30/2000
29-Jun-07
(June 30, 1986 - July 31, 2008) Sources: CBOE and Bloomberg
Mon
th-e
nd p
rices
for t
otal
retu
rn in
dexe
s, re
-sc
aled
to $
1 on
Jun
e 30
, 198
6
55Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
BXY, BXM, PUT and “Traditional” IndexesTotal Return Indexes (June 1988* – July 31, 2008)
BXY OTM BW $919
BXM $803S&P 500 $743
30-yr TBonds $484
3-mo.T-Bills $244
PUT PutWrite $979
$0
$200
$400
$600
$800
$1,000
$1,200
Jun-88
Jun-93
Jun-98
Jun-03
Jun-08
Mon
th-e
nd p
rices
(sca
led
so th
at a
ll = $
100
on
ince
ptio
n da
te o
f Jun
e 1,
198
8)
* June 1988 is the first month for daily prices for the SPTR, BXY, and PUT indexes. Sources: CBOE & Bloomberg. The BuyWrite Indexes are designed to represent hypothetical buy-write strategies. Like many passive indexes, the BuyWrite Indexes do not take into account significant factors such as transaction costs and taxes and, because of factors such as these, many or most investors should be expected to underperform passive indexes. T-Bills and T-Bonds are represented by Citigroup indexes. See Risk Disclosure at www.cboe.com/BXM for more information.
56Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Returns and Volatility(1 June 1988 – 30 June 2008)
BXYPUT
Russell 2000
MSCI World (in US$)
0%
5%
10%
15%
0% 5% 10% 15% 20%
Standard Deviation of Monthly Returns
Ann
ualiz
ed R
etur
ns
BXM
Sources: CBOE and Bloomberg. The figures above represent total return indexes; Citigroup indexes are used for the fixed income numbers. Time period starts in June 1988 because that is the 1st month for the S&P 500 (TR) & PUT index daily prices. Please see risk disclosures. Past performance is not a guarantee of future returns.
T-bill 3-mo.
T-note 5-yr.T-bond 30-yr.
S&P 500
PUT – CBOE S&P 500 PutWrite IndexBXM – CBOE S&P 500 BuyWrite IndexBXY – CBOE S&P 500 2% OTM BuyWrite Index
57Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Returns & Standard DeviationFor periods ending July 31, 2008
Sources: CBOE and Bloomberg.*Please see BXM paper by Ibbotson at www.cboe.com/BXM for a discussion about caveats and use of Sharpe Ratio.
CBOE S&P 500 BuyWrite
Index
CBOE S&P 500 2% OTM BuyWrite
CBOE S&P 500 PutWrite
IndexS&P 500
(TR)Russell
2000 (TR)
MSCI World
Index (TR) Net US$
Citigroup 30-yr
Treasury Index
BXM BXY PUT SPTROne-Year Annualized Return -1.2% -4.2% 3.5% -11.1% -6.2% -10.9% 9.1%Three-Year Annualized Return 4.5% 4.6% 7.4% 2.9% 3.1% 6.8% 3.1%Five-Year Annualized Return 6.9% 7.8% 9.4% 7.0% 9.9% 11.0% 6.6%Ten-Year Annualized Return 5.9% 5.5% 7.7% 2.9% 6.9% 4.0% 5.7%Annualized Return Since 1-Jun-88 10.9% 11.6% 12.0% 10.5% 9.9% 7.4% 8.1%Annualized Return Since 30-Jun-86 10.3% n/a n/a 10.1% 8.9% 8.4% 7.0%
One-Year Standard Deviation 10.3% 11.7% 9.5% 13.7% 16.3% 14.8% 8.8%Three-Year Standard Deviation 6.9% 8.3% 6.5% 10.1% 13.7% 10.8% 9.4%Five-Year Standard Deviation 6.3% 7.9% 5.8% 9.5% 14.3% 10.1% 9.6%Ten-Year Standard Deviation 11.0% 12.6% 10.3% 15.0% 19.9% 14.5% 10.7%Standard Deviation Since 1-Jun-88 9.2% 11.0% 8.3% 13.7% 17.6% 13.9% 10.1%Standard Deviation Since 30-Jun-86 10.2% n/a n/a 14.9% 18.8% 14.4% 10.3%
Sharpe Ratio* Since 1-Jun-88 0.69 0.65 0.90 0.44 0.31 0.21 0.36
58Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Source of Returns- Sell “Rich” OptionsFrom: Paper by Goldman Sachs. "Finding Alpha via Covered Index Writing," Financial Analysts Journal. (September/October 2006).
59Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Gross Monthly Income from Options PremiumsAvg. premium received was 1.6% since June 1988.
BXM Index - Monthly Premiums Received as a % of the Underlying
Average was about 1.67% per month
0%
1%
2%
3%
4%
5%
(June 1986 - June 2008). Source: CBOE.
Caution: Please note that the above amounts do not reflect the net amount received, as the buywrite strategy’s stock position does have truncated upside potential.
60Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Recent Select Monthly StatisticsMonth-end
PriceAs a % of Underlying
CBOE Volatility Index
BXM Monthly Premium Received
CBOE S&P 500 BuyWrite
CBOE S&P 500 PutWrite
Index
S&P 500 Total
Return
VIX BXM PUT SPTRApr-07 14.22 1.1% 0.7% 1.1% 4.4%May-07 13.05 1.3% 2.3% 1.9% 3.5%Jun-07 16.23 1.5% -0.1% -0.2% -1.7%Jul-07 23.52 1.5% -2.1% -1.3% -3.1%Aug-07 23.38 3.7% 1.1% 2.0% 1.5%Sep-07 18.00 1.9% 1.4% 1.7% 3.7%Oct-07 18.53 2.1% 2.4% 2.8% 1.6%Nov-07 22.87 3.3% -1.9% -1.1% -4.2%Dec-07 22.50 2.0% 1.8% 1.2% -0.7%Jan-08 26.20 2.4% -5.9% -5.4% -6.0%Feb-08 26.54 2.8% 0.9% 1.7% -3.2%Mar-08 25.61 2.7% 1.7% 1.2% -0.4%Apr-08 20.79 2.0% 2.4% 2.3% 4.9%
Sources: CBOE and Bloomberg.
Monthly Returns
61Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
New CBOE Developments in 2008 –- Extended BXM price history back to June 30, 1986- Plan to introduce a 95-110 collar index with ticker “CLL”
62Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Studies on BuyWrites Fund Evaluation Group. Study of BXD and VXD Indexes (2007) at www.cboe.com/BXD http://www.feg.com/documents/EvaluationofBuyWriteandVolatilityIndexes.pdf
• Callan Associates. An Historical Evaluation of the CBOE S&P 500 BuyWrite Index (BXM). (Oct. 2006). at www.cboe.com/BXM http://www.cboe.com/micro/bxm/Callan_CBOE.pdf
• Goldman Sachs. "Finding Alpha via Covered Index Writing," Financial Analysts Journal. (September/October 2006). www.888options.com/institutional/research/pdfs/finding_alpha_via_covered_index_writing.pdf
• Ibbotson Associates. Feldman, Barry, and Dhruv Roy, "Passive Options-Based Investment Strategies: The Case of the CBOE S&P 500 BuyWrite Index." The Journal of Investing. (Summer 2005). at www.cboe.com/BXM www.cboe.com/micro/bxm/IbbotsonAug30final.pdf
• Duke University. Whaley, Robert. "Risk and Return of the CBOE BuyWrite Monthly Index" The Journal of Derivatives (Winter 2002).
University of Massachusetts. Schneeweis, Thomas, and Richard Spurgin. "The Benefits of Index Option-Based Strategies for Institutional Portfolios" The Journal of Alternative Investments, (Spring 2001).
63Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Risk-adjusted ReturnsExhibit 6 from the Callan Study
64Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Exhibit 8 from Callan Associates’ 2006 Study
65Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Exhibit 9 from Callan Associates’ 2006 Study
Rolling 5-Year Annualized Returns
66Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Exhibit 10 from Callan Associates’ 2006 StudyRolling 5-Year Annualized Standard Deviation
67Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Exhibit 12 from Callan Associates’ 2006 Study
68Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Measuring the impact of adding CBOE BXM to diversified portfolios. Calculated with monthly rebalancing over the period June 1, 1988 to August 31, 2006. BXM substituted for 10% of large cap equity exposure in each asset mix. In all cases, return is essentially unchanged while risk is reduced, improving the risk-adjusted return as measured by the Sharpe ratio.
3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0%8.25%
8.50%
8.75%
9.00%
9.25%
9.50%
9.75%
10.00%
10.25%
Standard Deviation
Ret
urns
(June 1, 1988 - August 31, 2006)Annualized Return versus Risk
Moderate
Conservative
Aggressive
Conservative + BXM
Moderate + BXM
Aggressive + BXM
Exhibit 17 from Callan Associates’ 2006 Study
69Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Income Graph from 2007 Study by Fund Evaluation Group
The avg. monthly call premium received was 1.84%. www.cboe.com/BXD.
70Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
More than $30 Billion in 45 BuyWrite ProductsSamples include:
CBOE does not provide endorsements or recommendations for any fund. Investors in some Asian countries might not be permitted to invest in these funds
Ticker Investment ProductBWC BlackRock World Investment TrustPBN Citigroup Funding PISTONS linked to BXM IndexDPD Dow 30 Premium & Dividend Income Fund IncETW Eaton Vance Tax-MgdGlobal Buy-Write Opportunity FundBEO Enhanced S&P 500 Covered Call Fund
GATEX Gateway FundGSPAX Goldman Sachs U.S. Equity Dividend and Premium Fund
IGA ING Global Advantage and Premium Opportunity Fd MCN Madison/Claymore Covered Call FundBXU Merrill Lynch 8% Return Notes Linked to BXM IndexMBS Morgan Stanley Strategic Total Return Securities (STARS) linked to BXM IndexNFJ NFJ Dividend Interest & Premium Strategy FundNAI Nicholas-Applegate International & Premium Strategy FundJPZ Nuveen Equity Premium Income FundPGP PIMCO Global StocksPLUS & Income FundBEP S&P 500 Covered Call Fund Inc. (IQ Inv. Adv., Merrill Lynch)
VEPBX Van Kampen Equity Premium Income Fund
BWV Barclays iPath CBOE S&P 500 BuyWrite Index (ETN based on BXM Index)PBP PowerShares S&P 500 BuyWrite Portfolio (ETF based on BXM Index)
71Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Sample U.S. Fund PerformanceOne-Year Mkt Return Thru
1-Aug-2008
Three-Year
Mkt Return, Annualized, Thru 1-
Aug-2008
Standard Deviation - Trailing 3-yr Thru
31-July-2008
Beta - Trailing 3-yr Thru 31-July-
2008
Gateway Fund (GATEX) 0.68% 5.57% 4.34 0.38
Eaton Vance Enh Eq Inc (EOI) -4.14% 1.29% 7.88 0.76
NFJ Div., Int., & Prem Str Fd (NFJ) -6.79% 3.51% 7.76 0.70
iShares Russell 2000 (IWM) -6.82% 2.85% 13.62 1.14
iShares Russell 1000 (IWB) -11.64% 2.82% 10.12 1.00
Source: www.morningstar.com on 4-August-2008
CBOE does not provide investment advice or recommendations for any funds, includingthe funds listed above. Please read the applicable prospectus. Investors in some Asian countries might not be allowed to invest in these U.S. funds.
72Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
6. Benchmark Indexes for Volatility-based Strategies –VIX, VPD, OVX, etc.
73Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Volatility Indexes at CBOE
www.cboe.com/volatility
Index Index Ticker
Options Available? Website
CBOE Volatility Index® VIX® Yes www.cboe.com/VIX
CBOE DJIA Volatility Index VXD www.cboe.com/VXD
CBOE NASDAQ-100 Volatility Index VXN Yes www.cboe.com/VXN
CBOE Russell 2000 Volatility Index RVX Yes www.cboe.com/RVX
CBOE S&P 100 Volatility Index VXO www.cboe.com/VXO
CBOE S&P 500 3-Month Volatility Index VXV www.cboe.com/VXV
CBOE VIX Premium Strategy Index VPD www.cboe.com/VPD
CBOE Capped VIX Premium Strategy Index VPN www.cboe.com/VPN
CBOE S&P 500® VARB-XTM Benchmark VTY www.cboe.com/VTY
CBOE Crude Oil Volatility Index OVX www.cboe.com/OVX
CBOE Lehman 5-Month Constant Maturity VIX Futures Index VWXCBOE Gold Volatility Index GVZ www.cboe.com/GVZ
CBOE EuroCurrency Volatility Index EVZ www.cboe.com/EVZ
74Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
News Clip Barron’s 21st July 2008”… the current financial crisis has made CBOE's VIX a
market darling …… In May, the Mumbai-based National Stock Exchange licensed VIX to create India VIX. CBOE also has agreements with the Taiwan Futures Exchange, Germany's Eurex, and Euronext. VIX indexes will be listed on London's FTSE 100, Amsterdam Exchange Index(AEX), France's CAC 40 and Belgium's BEL20 Index. …Last week, VIX was applied to crude oil, marking the start of a series of non-stock VIX indexes. By year's end, CBOE will introduce VIX indexes on gold, foreign currencies and interest rates. This will complement Dow (DJX), Nasdaq (VXN), Russell 2000 (RVX) and Standard & Poor's 100 (VXO) VIX indexes. … “ (emphasis added)
75Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
CBOE Volatility Index® (VIX® )Since 1993 a premier barometer of investor sentiment and market volatility.In Sept. 2003 new VIX methodology.Implied volatility index -- measures the market's expectation of 30-day volatility implicit in the prices of near-term S&P 500 (SPX) options. VIX is quoted in percentage points, just like the standard deviation of a rate of return, e.g. 23.26. The SPX options used in the VIX calculation are –
O-T-M puts and call covering the entire range of strike prices (the “ volatility skew”)From the nearby and next-to-nearby expiration months for a constant 30-day volatility measure
VIX futures in 2004 and VIX options in 2006, with settlement date on Wednesday (30 days before SPX expiration)www.cboe.com/VIX
76Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Unique Features of Volatility Index Products
Futures Pricing Based on Forward Value of Volatility Index Pricing Can Be Different for a Number of Reasons Wednesday Settlement Special Opening Quotation Price Negative Correlation to Stock Indexes High Volatility of Volatility
77Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Why Trade Volatility?Negative correlation to most equity indexesPositive correlation to credit pricesEfficient way to manage unwanted market risk Unique properties of volatility create trading opportunities
Historical difference between realized and implied volatilityVolatility Term StructureHigh Volatility of Volatility
78Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
CBOE Volatility Index (VIX)VIX and S&P 500
VIX
S&P 500 (SPX)
0
25
50
75
01/02/90
01/04/93
01/05/96
01/08/99
01/18/02
26-Jan-05
2/4/2008
Sources: CBOE and Bloomberg. (2-Jan-1990 - 22-July-2008). www.cboe.com/VIX
VIX
Dai
ly C
losi
ng P
rices
0
600
1200
1800
SPX
79Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Four Volatility Indexes Since Jan. 2007CBOE Crude Oil Volatility Index (OVX) CBOE NASDAQ-100 Volatility Index (VXN)CBOE Russell 2000 Volatility Index (RVX) CBOE Volatility Index® (VIX)
Select volatility indexes at CBOE
0
10
20
30
40
50
60
3-Jan-2007 5-Jul-2007 3-Jan-2008 3-Jul-2008
(3-Jan-2007 to 22-July-2008) Sources: CBOE and Bloomberg.
Dai
ly C
losi
ng P
rices
OVX
VXN
RVX
VIX
80Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
One Year of PricesUS Oil Fund ETF (USO) CBOE Crude Oil Volatility Index (OVX) CBOE Volatility Index® (VIX)
0
20
40
60
80
100
120
23-Jul-2007 23-Oct-2007 23-Jan-2008 23-Apr-2008
USO ETF
OVXIndex
VIXIndex
81Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
ETFs and Volatility Indexes (July 23, 2007 – July 30, 2008)
0
50
100
150
200
23-Jul-2007 23-Dec-2007 23-May-2008
FXE ETF
USO ETF
GLD ETF
OVX
GVZ
VIX
EVZ
FXE – CurrencySharesEuro Trust
USO - US Oil Fund
GLD - SPDR Gold Shares
OVX - CBOE Crude Oil Volatility Index
GVZ - CBOE Gold Volatility Index
VIX - CBOE Volatility Index
EVZ - CBOE EuroCurrencyVolatility Index
Sources: CBOE and Bloomberg
82Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Three Volatility Indexes Since Jan. 2007 CBOE S&P 100 Volatility Index (VXO) CBOE Volatility Index (VIX) CBOE DJIA Volatility Index (VXD)
Select volatility indexes at CBOE
0
10
20
30
40
3-Jan-2007 5-Jul-2007 3-Jan-2008 3-Jul-2008
(3-Jan-2007 to 22-July-2008) Sources: CBOE and Bloomberg.
Dai
ly C
losi
ng P
rices VXO
VIX
VXD
83Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
High Volatility of Volatility
83.3%
45.8%
94.2%
56.0%
132.0%
78.5%
0%
20%
40%
60%
80%
100%
120%
140%
2005 2006 2007Historic Volatility of Daily Returns (Source: CBOE).
VIX (spot)
VIX Near-termFutures
84Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Volatilities of VIX, Stocks, & Stock IndexHistoric Volatility in Years
2005, 2006, & 2007
132.0%
94.2%83.3%
0%
50%
100%
150%
2005 2006 2007
Source: CBOE
VIX (spot)
VIX Near-term Futures
GM
AAPL
GOOG
IBM
S&P 500 (SPX)
Historic Volatility2005 2006 2007
VIX (spot) 83.3% 94.2% 132.0%VIX Near-term Futures 45.8% 56.0% 78.5%
GM 42.6% 41.3% 39.8%AAPL 38.8% 38.1% 37.6%GOOG 32.1% 34.0% 24.3%
IBM 17.9% 14.2% 20.6%S&P 500 (SPX) 10.3% 10.0% 16.0%
Source: CBOE
85Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Negative CorrelationsNegative Correlations
The VIX and S&P 500 Indexes had a negative correlation of daily returns (-0.85) in 2007.
-0.76 -0.83 -0.82 -0.85-1.0
-0.5
0.0
0.5
2004 2005 2006 2007
Correlation of Daily Returns for Volatility and Stock Indexes. Source: CBOE.
VIX and SPX VXD and DJXRVX and RUT VXN and NDX
86Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Key Dates for VIX Prices Closing Price % Change
VIX SPX VIX SPX
Three days on which VIX rose by more than 50%27-Feb-2007 18.19 358.76 64.2% -3.5%15-Nov-1991 19.22 355.66 51.7% -3.7%23-Jul-1990 20.11 352.20 51.5% -1.7%
Two days on which VIX fell by more than 24%5-Apr-1994 25.01 1260.32 -24.0% 2.1%
15-Jun-2006 24.05 1260.68 -25.9% 2.1%
Seven days on which VIX closed above 43.70 8-Oct-1998 45.74 959.44 5.1% -1.2%
10-Sep-1998 45.29 980.19 14.2% -2.6%5-Aug-2002 45.08 834.60 9.2% -3.4%23-Jul-2002 44.92 797.70 7.3% -2.7%31-Aug-1998 44.28 957.28 11.8% -6.8%11-Sep-1998 43.74 1009.06 -3.4% 2.9%20-Sep-2001 43.74 984.54 7.8% -3.1%
Survey of Trading Days from 2-Jan-1990 to 22-July-2008. Source: CBOE.
87Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Key Specifications & Volume- VIX Futures & Options
102,1104,387Avg. Daily Volume (Jan-July 2008)
1,130,51544,640Open Interest(July 31, 2008)
Generally on Wednesday 30 days prior to the 3rd Friday ofcalendar month immediately following the expiring month.
Expiration DateGenerally on Tuesday, the day before expiration date.Last Day of Trading
Feb. 24, 2006 March 26, 2004 Launch Date
8:30 a.m. – 3:15 p.m. Chicago Time Trading Hours
$100$1,000Multiplier
VIXVXTicker
CBOECFEExchangeOptionsFutures
88Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
VIX Spot, Futures & Options in Feb.-Mar. 2007On Feb. 27 the S&P 500 fell by 3.5%, the VIX Index rose 64%,
and VIX Mar. 07 futures were up 29.5%.
5
10
15
20
2/1/2007
2/15/2007
3/2/2007
3/16/2007
VIX Spot
VIX Mar '07Futures
VIX Nov '07Futures
On Feb. 27 the March '07 15.0 VIX calls rose 483%.
0.0
0.5
1.0
1.5
2.0
2.5
2/1/2007
2/15/2007
3/2/2007
3/16/2007
VIX May'07 15.0Calls
VIXMarch '0715.0 Calls
89Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
% Change in Prices on 27 Feb. 2007
77.3%
64.2%
29.5%
3.2%
-3.5%
483.3%VIX March '07 15.0 Calls
VIX May '07 15.0 Calls
VIX Spot Index
VIX Mar '07 Futures
VIX Nov '07 Futures
S&P 500 (SPX)
90Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
VIX and VIX Futures in July 2008
20
22
24
26
28
30
1-Jul
3-Jul
5-Jul
7-Jul
9-Jul
11-Jul
13-Jul
15-Jul
17-Jul
19-Jul
21-Jul
23-Jul
25-Jul
27-Jul
29-Jul
31-JulVIX Spot
VX July08 Fut
VX Nov08 Fut
The 2-week % change from 1-July to 15-July was 21% for VIX spot, 17% for VIX July’08 Futures, and 8% for VIX Nov’08 Futures. Sources: CBOE and Bloomberg.
91Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Benchmark Indexes and VIX FuturesCBOE Lehman 5-Month Constant Maturity VIX Futures Index (VWX) - reflects the performance of a strategy that systematically holds a "long volatility" position consisting of VIX futures with expiries ranging from 4 to 7 months. The strategy's objective is to maintain a constant maturity exposure to 5-month VIX forward implied volatility. The portfolio is adjusted daily by selling a portion of the 4th month VIX futures and buying an equal amount of 7th month VIX futures, effectively spreading the futures "roll" over each month. CBOE VIX Premium Strategy Index (VPD) - tracks the performance of a strategy that systematically sells 1-month VIX futures. This index tracks the value of a portfolio that overlays a sequence of short one-month VIX futures on a money market account. The VIX futures are held until expiration and new VIX futures are then sold. The money market account decreases leverage relative to a stand-alone short position in VIX futures. To further limit risk, the number of VIX futures sold at each roll is set to preserve 75% of the initial value of the portfolio in the event that VIX futures increase by 25 points.CBOE Capped VIX Premium Strategy Index (VPN) - tracks the performance of a strategy that systematically sells 1-month VIX futures, capped by the purchase of a VIX call option. The short VIX futures position is capped with long VIX calls struck 25 points higher than the VIX futures price, or calls at the closest strike below if this strike is not listed.
92Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Month-end Price Levels-- CBOE VIX Premium Strategy Index (VPD)-- CBOE Capped VIX Premium Strategy Index (VPN)-- CBOE Lehman 5-Month Constant Maturity VIX Futures Index (VWX)-- CBOE Volatility Index (VIX)
0
50
100
150
200
Jun-04 Jun-05 Jun-06 Jun-07 Jun-08
(June 2004 - June 2008). Sources: CBOE and Bloomberg.
VPD
VPN
VWX
VIX
93Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
One-Year Change in Select Index Prices CBOE Lehman 5-Month Constant Maturity VIX Futures Index (VWX)CBOE VIX Premium Strategy Index (VPD)CBOE Capped VIX Premium Strategy Index (VPN)
70%
80%
90%
100%
110%
120%
130%
140%
31-Jul-07
30-Sep-07
30-Nov-07
31-Jan-08
31-Mar-08
31-May-08
31-Jul-08
(July 31, 2007 - July 31, 2008) Sources: CBOE and Bloomberg.
Dai
ly C
losi
ng P
rices
, re-
scal
ed to
100
%
on J
uly
23, 2
007
Down 11% S&P 500 (TR)
Up 14% VWX
Up 6% VPDUp 3% VPN
94Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
7. Volatility-based Strategies
95Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Volatility Trading
1. Negative Correlation?2. Mean Reverting?3. Implied versus Historical?4. Other Issues…
96Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Sources of Volatility Trading IdeasVolatility Report: Macro Themes
RelationshipsTerm StructureRelative Volatility RangeVolatility Surfaces
RankingScreening/ScanningCorrelation/DispersionTrading ActivityBacktesting
97Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Volatility Report - Relationships
1. Spreads between volatility indexes2. IV and HV percentiles3. 10-day to 30-day HV4. Proximity to high and low readings
69%23.1974%20.5111.131/22/2008126.0010/11/2007157.520.36%135.62SPY
68%22.5885%22.1914.531/23/20081270.0510/11/20071576.090.23%1353.11SPX
--21%106.4754.522/22/20079.031/22/200838.88-3.00%26.51VXO
--15%92.7864.342/22/20078.938/16/200734.21-3.76%21.75VXD
16%59.907%68.6551.922/22/200714.258/16/200742.600.51%29.58RVX
26%81.4837%88.9772.016/15/200714.541/22/200840.77-1.46%26.30VXN
--9%53.0629.152/22/200711.321/22/200830.29-4.09%24.40VXV
9%65.3317%91.9254.082/22/20079.701/22/200837.57-3.84%24.06VIX
PercentileIVPercentileHVHVLow DateLowHigh DateHighChange ValueSymbol
IV30-DayHV30-Day10-Day52-Week52-
Week52-Week52-
WeekWeeklyClosingIndex
98Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Term Structure of VolatilityTerm Structure of VIX (2-18-08)
24.4124.4524.68
25.17
25.3625.5025.91
25.93
26.07
VIX 25.02
VXV 25.44
23
24
25
26
27
Febr
uary
2008
March
2008
April 2
008
May 20
08Ju
ne 20
08Ju
ly 20
08Aug
ust 2
008
Novem
ber 2
008
Decem
ber 2
008
Term Structure of VXN / RVX (2-18-08)
31.39 31.39
30.27 30.4230.97
28.228.5
28.828.9228.4
RVX 29.43
VXN 26.6926
27
28
29
30
31
32
February2008
March 2008
April2008
May2008
June2008
RVXVXNRVX SpotVXN Spot
1. Relationship between spot and future volatility prices2. Provides valuable insights into market expectations3. Is the market fading recent gains or losses in spot? 4. Is the info. consistent for the various products?
99Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Changes in Term StructureTerm Structure of VIX (2-18-08)
24.4124.4524.68
25.17
25.3625.5025.91
25.93
26.07
VIX 25.02
VXV 25.44
23
24
25
26
27
Febr
uary
2008
March
2008
April 2
008
May 20
08Ju
ne 20
08Ju
ly 20
08Aug
ust 2
008
Novem
ber 2
008
Decem
ber 2
008
Term Structure of VXN / RVX (2-18-08)
31.39 31.39
30.27 30.4230.97
28.228.5
28.828.9228.4
RVX 29.43
VXN 26.6926
27
28
29
30
31
32
February2008
March 2008
April2008
May2008
June2008
RVXVXNRVX SpotVXN Spot
Term Structure of VIX (6-23-08)
23.7223.87
23.3823.4323.5423.7223.70
23.43
23.51
VIX 22.87
VXV 23.57
22
23
24
25
July
2008
Aug. 2
008
Sept
. 200
8Octo
ber 2
008
Novem
ber 2
008
Decem
ber 2
008
Janu
ary 2
009
Febr
uary
2009
March
2009
Term Structure of VXN / RVX (6-23-08)
28.90
27.63
28.8928.63
27.5527.5527.5527.15
RVX 26.35
VXN 26.75
26
27
28
29
30
July 2008 August2008
September2008
November2008
RVXVXNRVX SpotVXN Spot
100Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Relative Volatility Range
-33.48%
-27.64%-20.24%
-35.48%-35.91%
-28.29%-12.69%
-21.59%-12.53%
-40% -30% -20% -10% 0%
Undervalued Premiums (Negative %)Overvalued Premiums (Positive %)
XLB-Materials SPDR
XLE-Energy SPDR
XLF-Financial SPDR
XLI-Industrial SPDR
XLK-Technology SPDR
XLP-Consumer Staples SPDR
XLU-Utilities SPDR
XLV-Health Care SPDR
XLY-Consumer Discretionary SPDR
Select Sector SPDR Relative Volatility Range2/18/08
1. IV forward looking / HV backward looking2. Compares IV Percentile to HV Percentile3. Understand the challenges4. Interpretation is important
101Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Relative Volatility Range
-33.48%
-27.64%-20.24%
-35.48%-35.91%
-28.29%-12.69%
-21.59%-12.53%
-40% -30% -20% -10% 0%
Undervalued Premiums (Negative %)Overvalued Premiums (Positive %)
XLB-Materials SPDR
XLE-Energy SPDR
XLF-Financial SPDR
XLI-Industrial SPDR
XLK-Technology SPDR
XLP-Consumer Staples SPDR
XLU-Utilities SPDR
XLV-Health Care SPDR
XLY-Consumer Discretionary SPDR
Select Sector SPDR Relative Volatility Range2/18/08
2.21%
2.72%
9.21%
-8.11%
10.00%16.77%
17.11%22.73%
28.03%
-10% 0% 10% 20% 30%
Undervalued Premiums (Negative %) Overvalued Premiums (Positive %)
XLB-Materials SPDR
XLE-Energy SPDR
XLF-Financial SPDR
XLI-Industrial SPDR
XLK-Technology SPDR
XLP-Consumer Staples SPDR
XLU-Utilities SPDR
XLV-Health Care SPDR
XLY-Consumer Discretionary SPDR
Select Sector SPDR Relative Volatility Range6/23/08
102Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Volatility Surfaces
30
720
50 30 10 0
20
400.00
0.10
0.20
0.30
0.40
IV
TermOTM
SPX Volatility Surface - 2-28-08
0.3000-0.40000.2000-0.30000.1000-0.20000.0000-0.1000
1. Valuable insights into intricacies of volatility2. Easily visualize skews, smiles and smirks 3. Pinpoints possibly profitable aberrations4. Ask why the surface is shaped like it is5. Make sure VIX data is based off of futures!
30
720
50 30 10 0
20
40
0.00
0.20
0.40
0.60
0.80
1.00
IV
TermOTM
VIX Volatility Surface - 2-28-08
0.8000-1.00000.6000-0.80000.4000-0.60000.2000-0.40000.0000-0.2000
103Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Ranking – IV Percentile
1. Ranks stocks for high and low IV Percentile2. Critical – find out why they are on the list!!!
a) Takeoverb) Earningsc) Corporate News - Clinical Trial results, etc.
3. Interpretation is critical
33.85121.5041.1225%Teradata Corp.TDC534.10146.3949.91100%CISCO SYSTEMS INCCSCO
31.40111.8135.1120%
FOREST LABORATORIES INCFRX427.15140.6338.19100%FISERV INCFISV
36.9389.0732.8917%CINCINNATI FINANCIAL CORPCINF336.60125.0345.75100%
EXPRESS SCRIPTS INC [class A]ESRX
26.1481.0121.189%COMMERCE BANCORP INC.CBH237.50127.7247.89100%
ANALOG DEVICES INCADI
12.11137.1516.614%Trane IncTT141.94113.1447.45100%AMERICAN TOWER CORPAMT
LastIV/HVLastRangeUnderlying AssetSymbolLastIV/HVLastRangeUnderlying AssetSymbol
HVRatioIVIVHVRatioIVIV
S&P 500 Stocks with Lowest IV as % of 52 Week RangeS&P 500 Stocks with Highest IV as % of 52 Week Range
104Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Ranking – Ratio of IV to HV
1. Ranks stocks for high and low IV / HV Ratio2. Find out why they are here!!!3. Distinguish between temporary aberration or real
opportunity
61.7064%34.6556%
COMPUTER ASSOCIATES INTL INCCA555.4649%83.93151%TELLABS INCTLAB
73.5967%34.1246%WATERS CORPWAT424.3191%39.01160%
WATSON PHARMACEUTICALS INCWPI
188.3527%85.8746%COUNTRYWIDE CREDIT INDS INCCFC319.3283%31.06161%
LAB CORP OF AMERICA HOLDINGSLH
151.5777%54.8136%HARMAN INT L IND INCHAR240.65100%75.90187%
MOODY'S CORPORATIONMCO
126.9342%43.1334%YAHOO INCYHO
O145.0791%96.35214%CLEAR CHANNEL COMMUNICTNS INCCCU
LastRangeLastIV/HVUnderlying AssetSym.LastRangeLastIV/HVUnderlying AssetSym.
HVIVIVRatioHVIVIVRatio
S&P 500 Stocks with Lowest Ratio of IV to HVS&P 500 Stocks with Highest Ratio of IV to HV
105Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Screening / Scanning
1. Scan massive trading data for valuable insights2. Very powerful when combined with backtesting3. Don’t confuse macro issues as micro opportunities4. Understand what the numbers are telling you and
the interaction between factors
5.38%$100.2620.43%5.67%52.82%14.67%$5.50$105.9
6115 Apr08BENDCBEN
7.36%$98.1628.55%7.93%43.33%12.04%$7.60$105.9
6110 Apr08BENDBBEN
3.78%$101.9638.17%3.92%76.72%7.89%$4.00$105.9
6110 Feb08BENBBBEN
3.62%$26.6118.79%3.76%63.70%12.74%$1.00$27.6130 Mar08BBTCFBBT
2.17%$27.0121.61%2.22%107.71%11.07%$0.60$27.6130 Feb08BBTBFBBT
1.78%$38.6017.64%1.81%98.31%10.10%$0.70$39.3042 1/2Feb08BACBVBAC
4.45%$37.5545.34%4.66%63.48%6.52%$1.75$39.3040 Feb08BACBHBAC
1.65%$38.6567.27%1.68%139.72%3.49%$0.65$39.3040 Jan08BACAHBAC
4.84%$22.8118.06%5.02%34.10%9.47%$0.85$23.9725 Apr08AJGDEAJG
(percent)Even(percent)(percent)(percent)*(percent)PricePricePrice(Year)SymbolSymbol
ProtectionBreakAnnualizedReturn AnnualizedReturnBidLastStrikeMonthTickerStock
DownsideDownsideReturn if UnchangedReturn if CalledCallStockOptionExpirationOption
106Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Correlations - Dispersion
1. Ability to go long or short correlation2. Profit from large movements in individual stocks
versus the index (or vice versa)3. Tends to experience periods where it “sets-up” and
periods when it doesn’t
10.180.441.8135.2719.510.0315.5760.261.3615.67ADBE
10.040.61.3219.1814.53014.53-0.84-0.0111.45ACS
10.150.491.0418.3517.630.0215.4847.870.979.02ACE
10.650.541.1818.8515.980.0912.4462.731.1610.23ABT
10.070.621.216.8914.030.0111.2359.950.9710.44ABK
10.040.310.8824.2127.62026.9521.930.77.6ABI
10.070.290.8726.0529.98029.94-5.25-0.187.53ABC
10.670.41.2627.4321.730.0521.2221.540.5410.95AAPL
10.250.261.239.3132.820.0430.9533.251.2610.39AA
10.110.330.8221.4126.190.0223.6343.111.37.09A
Multiplier
%Ratio%%To Index VolyVariance%Index IV
SelectWeightWeightVolIV/HVIV MeanHVContributionSpecificCorrBetaEquivTicker
107Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Trading Activity
1. Increases/decreases in:a) Trading volume/Open interestb) Implied volatility levels
2. Determine possible pins near expiration 3. Effective for analyzing roll activity for covered calls 4. Watch out for dividend plays
194400.38532.35%5900ISESELLER$0.97Calls45Mar08BAC1925
250010.31533.58%2269ISEBUYER$1.35Calls47.5May08BAC2000
36620-0.3144.35%4673ISEBUYER$2.35Puts40May08BAC2000
194400.34533.28%2567ISESELLER$0.85Calls45Mar08BAC2000
174580.342542.52%4520ISEMIDMKT$4.45Calls55Jan09AIG1500
18581-1236.25%1502ARCABUYER$19.50Puts65Feb08AIG1502
18581-1229.42%3004ARCABUYER$19.50Puts65Feb08AIG1502
174580.3542.47%3000ISEBUYER$4.45Calls55Jan09AIG3000
3788-0.49537.90%1933ISESELLER$0.45Puts35Feb08ADBE1300
OI(t)DeltaIvolVolumeExch.SidePriceTypeStrikeExpirySymbolQuantity
108Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Backtesting
1. Can provide extremely valuable insights 2. Does the Past = the Future? 3. Small changes can make big differences4. Be aware of macro issues impacting results5. Be careful of data mining and timeframe used for
analysis
262,500.0063,750.00Sell6.38-1006/22/1996660PutSPX5/29/1996
198,750.00-625.00Buy0.061005/18/1996640PutSPX5/16/1996
199,375.0050,000.00Sell5.00-1005/18/1996640PutSPX4/24/1996
149,375.00-3,750.00Buy0.381004/20/1996640PutSPX4/18/1996
153,125.0075,000.00Sell7.50-1004/20/1996640PutSPX3/27/1996
78,125.00-6,250.00Buy0.621003/16/1996640PutSPX3/14/1996
84,375.0040,000.00Sell4.00-1003/16/1996640PutSPX2/21/1996
44,375.00-625.00Buy0.061002/17/1996615PutSPX2/15/1996
45,000.0045,000.00Sell4.50-1002/17/1996615PutSPX1/24/1996
P+LTrade NetB/SPriceContractsExpirationStrikeC/PAssetTrade Date
109Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Summary – Volatility Idea Generation1. Many sources of information for ideas2. Some data extremely valuable, other data
requires some work and interpretation3. Understand what the data is telling you and
its limitations4. Watch macro issues = micro opportunities5. Be careful of data mining and the timeframe
There is alwaysa better way
to do things…
110Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
8. Conclusion
111Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Potpourri of Option KnowledgeCan be good without being complicatedIf it is too good to be true find out whyUnderstand how your position changes as asset changes and time passesVolatility is extremely importantKnow the probability of successIt is worth the effort to understand options, their use is rapidly expanding
112Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
In conclusionDiversification and risk management Options-based strategies and benchmark indexes have attracted more interestPlease see the last slide for important risk disclosures
113Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
In conclusionDiversification and risk management Options-based strategies and benchmark indexes have attracted more interestPlease see the last slide for important risk disclosures
114Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.This is meant to provide general information; it is not to provide investment advice.
Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (the “ODD”). The ODD and supporting documentation for any claims, comparisons, recommendations, statistics or other technical data in these materials are available by calling 1-888-OPTIONS, or contacting CBOE at www.cboe.com/Contact. The information in these materials is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Many of the matters discussed are subject to detailed rules, regulations, and statutory provisions which should be referred to for additional detail and are subject to changes that may not be reflected in these materials. No statement within this material should be construed as a recommendation to buy or sell a security or to provide investment advice. The CBOE S&P 500 BuyWrite Index (BXMSM), CBOE S&P 500 2% OTM BuyWrite Index (BXYSM), CBOE DJIA BuyWrite Index (BXDSM), CBOE Russell 2000 BuyWrite Index (BXRSM) and CBOE NASDAQ-100 BuyWrite Index (BXNSM) (the “Indexes”) are designed to represent proposed hypothetical buy-write strategies. Like many passive benchmarks, the Indexes do not take into account significant factors such as transaction costs and taxes. Transaction costs and taxes for a buy-write strategy could be significantly higher than transaction costs for a passive strategy of buying-and-holding stocks. Investors attempting to replicate the Indexes should discuss with their brokers possible timing and liquidity issues. Past performance does not guarantee future results. These materials contain comparisons, assertions, and conclusions regarding the performance of indexes based on backtesting, i.e., calculations of how the indexes might have performed in the past if they had existed. Backtested performance information is purely hypothetical and is provided in this document solely for informational purposes. The methodology of the Indexes is owned by Chicago Board Options Exchange, Incorporated (CBOE) may be covered by one or more patents or pending patent applications. Standard & Poor's®, S&P®, and S&P 500® are registered trademarks of The McGraw-Hill Companies, Inc. and are licensed for use by CBOE. "Dow Jones", "The Dow", "DJIA" and “Dow Jones Industrial Average” are trademarks of Dow Jones & Company, Inc. and have been licensed for use for certain purposes by CBOE. CBOE's options based on Dow Jones indexes and financial products based on the CBOE DJIA BuyWrite Index are not sponsored, endorsed, marketed or promoted by Dow Jones and Dow Jones makes no representations regarding the advisability of investing in such products. Nasdaq®, Nasdaq-100®, and Nasdaq-100 Index®, are trademarks of The Nasdaq Stock Market, Inc. (which with its affiliates is referred to as the "Corporations") and are licensed for use by CBOE. The CBOE NASDAQ-100 BuyWrite Index (the "BXN Index") is not derived, maintained, published, calculated or disseminated by the Corporations. CBOE Volatility Index®, VIX®, CBOE®
and Chicago Board Options Exchange® are registered trademarks and BXM, BXD, BXN and BXY are servicemarks of CBOE. Copyright © 2008 Chicago Board Options Exchange, Incorporated. All Rights Reserved.