QMS Advisors - Option Strategist - Swiss Market Index (SMI Index)

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Option Strategist – Swiss Market Index (SMI)

Asset Management:
A highly competitive landscape anchored in the Mean-Variance space.

Monetizing Volatility
Significant potential enhancement of performance
Increased potential underlying asset’s returns via volatility monetization
Reduced risks in the mean-variance space

Transparent, flexible and actionable strategies:
Systematic management:
“Passive” investment strategy that requires no investment timing decision.
Allocation decision:
Overlays: solutions with minimal impact on a strategic asset allocation.
Dedicated allocation: Certificates, Structured Products, etc…


Options offer portfolio managers unrivaled tools to enhance their performance and to better manage their risk exposures

Multiple passive option-based investment strategies have offered and offer more attractive return and risk profiles in a mean-variance context than traditional passive investment strategies on similar underlying assets.
Covered call strategies consist in systematically selling one-month out of the money calls and rolling those positions at expiry. This systematic approach does not require any decisions in terms of market timing.
Covered Call strategies offer attractive payoff profiles:
Historically offered higher investment performance
Display asymmetric payoff profiles
Offer lower variance and drawdown risks
Though passive and implemented in a mechanical manner, this strategy dominates the efficient frontier on a historical basis.

Covered Call Strategies offer a simple, transparent and liquid alternative to tap the most recognized and documented source of alpha:

Covered call strategies are an easy and efficient way to monetize volatility: an approach that offers mechanical investment protocols with clear statistical return characteristics, and attractive historical track-records.

Historically, the strategy has produced significantly higher returns with lower realized volatility when compared to the underlying security, resulting in attractive Sharpe ratios.

Covered Call strategies are structurally short volatility strategies that allows investors to exploit one of the very few sources of academically recognized and widely documented market inefficiency, that is the non-convergence between implied and realized historical volatilities.


SMI SWISS MARKET SX5E Euro Stoxx 50 Pr SXXP STXE 600 € Pr UKX FTSE 100 CAC CAC 40 DAX DAX FTSEMIB FTSE MIB AEX AEX-Index OMX OMX STOCKHOLM 30 BEL20 BEL 20 SPX S&P 500 NDX NASDAQ 100 STOCK INDX SPTSX60 S&P/TSX 60 IBOV BRAZIL BOVESPA NKY NIKKEI 225 TPX TOPIX (TOKYO) HSI HANG SENG AS51 S&P/ASX 200 NIFTY NSE S&P CNX NIFTY TWSE TAIWAN TAIEX ABI BB ANHEUSER-BUSCH INBEV NV SAN SQ BANCO SANTANDER SA BBVA SQ BANCO BILBAO VIZCAYA ARGENTA CRH ID CRH PLC ENEL IM ENEL SPA ENI IM ENI SPA G IM ASSICURAZIONI GENERALI IBE SQ IBERDROLA SA INGA NA ING GROEP NV-CVA ISP IM INTESA SANPAOLO NOK1V FH NOKIA OYJ PHIA NA KONINKLIJKE PHILIPS ELECTRON REP SQ REPSOL YPF SA TIT IM TELECOM ITALIA SPA TEF SQ TELEFONICA SA UCG IM UNICREDIT SPA UNA NA UNILEVER NV-CVA ADS ADIDAS AG ALV ALLIANZ SE-REG BAS BASF SE BAYN BAYER AG-REG BMW BAYERISCHE MOTOREN WERKE AG BEI BEIERSDORF AG CBK COMMERZBANK AG DAI DAIMLER AG-REGISTERED SHARES DBK DEUTSCHE BANK AG-REGISTERED DB1 DEUTSCHE BOERSE AG LHA DEUTSCHE LUFTHANSA-REG DPW DEUTSCHE POST AG-REG DTE DEUTSCHE TELEKOM AG-REG EOAN E.ON AG FME FRESENIUS MEDICAL CARE AG & FRE3 FRESENIUS SE-PREF HEN3 HENKEL AG & CO KGAA VORZUG IFX INFINEON TECHNOLOGIES AG SDF K+S AG LIN LINDE AG MAN MAN SE MRK MERCK KGAA MEO METRO AG MUV2 MUENCHENER RUECKVER AG-REG RWE RWE AG SZG SALZGITTER AG SAP SAP AG SIE SIEMENS AG-REG TKA THYSSENKRUPP AG VOW VOLKSWAGEN AG AC ACCOR SA AI AIR LIQUIDE SA ALU ALCATEL-LUCENT ALO ALSTOM MT NA ARCELORMITTAL CS AXA SA BNP BNP PARIBAS EN BOUYGUES SA CAP CAP GEMINI CA CARREFOUR SA ACA CREDIT AGRICOLE SA BN DANONE DEX

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QMS Advisors - Option Strategist - Swiss Market Index (SMI Index)

  1. 1. Option Strategist Covered Call Strategy Euro Stoxx 50 Index February 2012 Q M S Advisors . .This material does not constitute investment advice and should not be viewed as tel: 078 922 08 77a current or past recommendation or a solicitation of an offer to buy or sell any e-mail: info@qmsadv.comsecurities or to adopt any investment strategy. website: www.qmsadv.com
  2. 2. Option Strategist Covered Call Strategy Enhancing Long-Term Portfolio Performance whileGOAL Diminishing Risks in the Mean-Variance Space Asset Management: A highly competitive landscape anchored in the Mean-Variance space. Monetizing Volatility Significant potential enhancement of performance • Increased potential underlying asset’s returns via volatility monetization • Reduced risks in the mean-variance space Transparent, flexible and actionable strategies: Systematic management: • “Passive” investment strategy that requires no investment timing decision. Allocation decision: • Overlays: solutions with minimal impact on a strategic asset allocation. • Dedicated allocation: Certificates, Structured Products, etc… Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com Page 1
  3. 3. Option Strategist Covered Call Strategy Euro Stoxx 50 Euro Stoxx 50Option Strategist- Covered Call: Covered Call Pr Ex-Div & Covered Call Pr Ex-Div & Euro Stoxx 50 ESTX 50 € Euro Stoxx 50Based on Historical Data from Jan Pr NRt Pr Ex-Div Strategy: Covered Call Strategy: 5% Covered Call16th 2006 to Jan 31st 2012 2.5% OTM Strategy: OTM Strategy: 5% 2.5% OTM OTMRendement Historique -9.57% -6.76% -9.57% 18.31% 6.99% 17.19% 5.98%Volatilité Historique 26.05% 26.03% 26.05% 11.23% 23.40% 8.53% 24.05%Rendement/Risque -0.37 -0.26 -0.37 1.63 0.30 2.01 0.25Skewness Historique 0.06 0.06 0.06 -3.19 0.49 -4.11 0.38Kurtosis Historique 5.56 5.58 5.56 58.61 15.04 85.73 11.27Maximum Drawdown -64.1% -62.5% -64.1% -23.1% -37.3% -16.0% -40.1%Tracking Error au SX5T Index 0.63% 0.00% 0.63% 32.64% 11.34% 30.44% 8.64%Correlation au SX5T Index 100.0% 100.0% 100.0% -44.7% 90.0% -39.6% 94.4%Beta au SX5T Index 1.000 1.000 1.000 -0.193 0.809 -0.130 0.872 Attractive historical statistical features Each strategy offers attractive statistical features whether considered on a standalone or total portfolio basis, and this despite the extreme market environment considered in our analysis. Source: Bloomberg, QMS Advisors Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com Page 2
  4. 4. Option Strategist Historical Efficient FrontierBased on Historical Data from Jan 16st 2006 to Jan 31st 2012 20% 15% Historical Return (in % p.a.) 10% 5% 0% 0% 5% 10% 15% 20% 25% 30% -5% -10% -15% Historical Volatility (in % p.a.) ESTX 50 € NRt Euro Stoxx 50 Pr Euro Stoxx 50 Pr Ex-Div Covered Call Strategy: 5% OTM Euro Stoxx 50 Pr Ex-Div & Covered Call Strategy: 5% OTM Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com Page 3
  5. 5. Option Strategist Covered Call StrategyRATIONALE In a historical mean-variance context, this strategies offers significantly higher Sharpe ratios Options offer portfolio managers unrivaled tools to enhance their performance and to better manage their risk exposures Multiple passive option-based investment strategies have offered and offer more attractive return and risk profiles in a mean-variance context than traditional passive investment strategies on similar underlying assets. • Covered call strategies consist in systematically selling one-month out of the money calls and rolling those positions at expiry. This systematic approach does not require any decisions in terms of market timing. Covered Call strategies offer attractive payoff profiles: • Historically offered higher investment performance • Display asymmetric payoff profiles • Offer lower variance and drawdown risks Though passive and implemented in a mechanical manner, this strategy dominates the efficient frontier on a historical basis. Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com Page 4
  6. 6. Option Strategist Performance Based on Historical Data from Jan 16st 2006 to Jan 31st 2012 350 300 250Growth of EUR 100.- 200 150 100 50 0 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 ESTX 50 € NRt Euro Stoxx 50 Pr Euro Stoxx 50 Pr Ex-Div & Covered Call Strategy: 5% OTM Covered Call Strategy: 5% OTM Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com Page 5
  7. 7. Option Strategist Reduced Drawdown RisksBased on Historical Data from Jan 16st 2006 to Jan 31st 2012 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 0% -10% -20%Historical Drawdowns (in %) -30% -40% -50% -60% -70% -80% -90% -100% Maximum Drawdown Euro Stoxx 50 Pr Ex-Div & Covered Call Strategy: 5% OTM Ex-Dividends Maximum Drawdown ESTX 50 € NRt Maximum Drawdown Euro Stoxx 50 Pr Ex-Div Ex-Dividends Maximum Drawdown Covered Call Strategy: 5% OTM Ex-Dividends Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com Page 6
  8. 8. Option Strategist Relative Risks and Tracking Error of the StrategyBased on Historical Data from Jan 16st 2006 to Jan 31st 2012 100% 100% 90% 90% Historical 30-Day Volatility and Tracking Error (in %) 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 30-Day Historical Volatility Euro Stoxx 50 Pr 30-Day Historical Volatility Euro Stoxx 50 Pr Ex-Div & Covered Call Strategy: 5% OTM 30-Day Tracking Error btw Euro Stoxx 50 Pr Ex-Div & Covered Call Strategy: 5% OTM to Euro Stoxx 50 Pr 30-Day ATM Implied Volatility - Euro Stoxx 50 Pr Ex-Div Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com Page 7
  9. 9. Option Strategist Relative Daily Distribution of Returns to the Benchmark Based on Historical Data from Jan 16st 2006 to Jan 31st 2012 10% 10% y = -0.1328x + 0.0007 D aily R etu rn s - S ys tem atic S ale o f 1-M o n th 8% 8%Daily Returns - Eurostoxx 50 Ex-Divs and R2 = 0.1557 6% 6% Covered Call Strategy (in %) 4% 4% 1 05% C alls (in % ) 2% 2% 0% 0% -10% -5% 0% 5% 10% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% -2% -2% -4% -4% -6% y = 0.8687x + 0.0007 -6% R2 = 0.8845 -8% -8% -10% -10% Daily Returns - Eurostoxx 50 Ex-Divs (in %) Daily Returns - Eurostoxx 50 Ex-Divs (in %) Euro Stoxx 50 Pr Ex-Div & Covered Call Strategy: 5% OTM Euro Stoxx 50 Pr Ex-Div & Covered Call Strategy: 5% OTM Attractive historical performance Covered call strategies introduce minimal tracking error to the underlying security Daily returns generated by the short call position have almost systematically been negatively correlated returns to the underlying’s returns Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com Page 8
  10. 10. Option Strategist Comparative Distribution of Returns to the Benchmark 30% 100% 30% 100%PDF: Probability Dist. Function (%) CDF: Cumulative Probability Dist. CDF: Cumulative Probability Dist. Function PDF: Probability Dist. Function (%) 90% 90% 25% 25% 80% 80% 70% 70% 20% 20% Function (%) 60% 60% 15% 50% 15% 50% (%) 40% 40% 10% 10% 30% 30% 5% 20% 20% 5% 10% 10% 0% 0% 0% 0% -6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% -6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Proba. Dist. F(). ESTX 50 € NRt Proba. Dist. F(). Euro Stoxx 50 Pr Proba. Dist. F(). ESTX 50 € NRt Proba. Dist. F(). Euro Stoxx 50 Pr Cumul. Dist. F(). ESTX 50 € NRt Cumul. Dist. F(). Euro Stoxx 50 Pr Cumul. Dist. F(). ESTX 50 € NRt Cumul. Dist. F(). Euro Stoxx 50 Pr 70% 100% 30% 100% CDF: Cumulative Probability Dist. PDF: Probability Dist. Function (%) CDF: Cumulative Probability 90% 90%PDF: Probability Dist. Function 60% 25% 80% 80% Dist. Function (%) 50% 70% 70% 20% Function (%) 40% 60% 60% 50% 15% 50% (%) 30% 40% 40% 30% 10% 30% 20% 20% 5% 20% 10% 10% 10% 0% 0% 0% 0% -6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% -6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% Proba. Dist. F(). ESTX 50 € NRt Proba. Dist. F(). ESTX 50 € NRt Proba. Dist. F(). Covered Call Strategy: 5% OTM Proba. Dist. F(). Euro Stoxx 50 Pr Ex-Div & Covered Call Strategy: 5% OTM Cumul. Dist. F(). ESTX 50 € NRt Cumul. Dist. F(). ESTX 50 € NRt Cumul. Dist. F(). Covered Call Strategy: 5% OTM Cumul. Dist. F(). Euro Stoxx 50 Pr Ex-Div & Covered Call Strategy: 5% OTM Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com Page 9
  11. 11. Option StrategistSimple and Transparent Approach to Tap Alpha SourcesCovered Call Strategies offer a simple, transparent and liquidalternative to tap the most recognized and documented source ofalpha: Covered call strategies are an easy and efficient way to monetize volatility: an approach that offers mechanical investment protocols with clear statistical return characteristics, and attractive historical track-records. Historically, the strategy has produced significantly higher returns with lower realized volatility when compared to the underlying security, resulting in attractive Sharpe ratios. Covered Call strategies are structurally short volatility strategies that allows investors to exploit one of the very few sources of academically recognized and widely documented market inefficiency, that is the non-convergence between implied and realized historical volatilities. Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com Page 10

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