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
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 77
a current or past recommendation or a solicitation of an offer to buy or sell any e-mail: info@qmsadv.com
securities or to adopt any investment strategy. website: www.qmsadv.com
2. Option Strategist
Covered Call Strategy
Enhancing Long-Term Portfolio Performance while
GOAL
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. Option Strategist
Covered Call Strategy
Euro Stoxx 50 Euro Stoxx 50
Option Strategist- Covered Call: Covered Call Pr Ex-Div & Covered Call Pr Ex-Div &
Euro Stoxx 50 ESTX 50 € Euro Stoxx 50
Based on Historical Data from Jan Pr NRt Pr Ex-Div
Strategy: Covered Call Strategy: 5% Covered Call
16th 2006 to Jan 31st 2012 2.5% OTM Strategy: OTM Strategy: 5%
2.5% OTM OTM
Rendement 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 0.25
Skewness Historique 0.06 0.06 0.06 -3.19 0.49 -4.11 0.38
Kurtosis Historique 5.56 5.58 5.56 58.61 15.04 85.73 11.27
Maximum 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. Option Strategist
Historical Efficient Frontier
Based 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. Option Strategist
Covered Call Strategy
RATIONALE
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. Option Strategist
Performance
Based on Historical Data from Jan 16st 2006 to Jan 31st 2012
350
300
250
Growth 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. Option Strategist
Reduced Drawdown Risks
Based 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. Option Strategist
Relative Risks and Tracking Error of the Strategy
Based 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. 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
11. Option Strategist
Simple and Transparent Approach to Tap Alpha Sources
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.
Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com
Page 10