3 Decembor 2013 US Derivatives Spotlight Figure 9: Comparing performance under rising and falling markets: Equity vs. various 36M call option strategies rolled after 24M 044412 to Oct-07 Return Volatility 0c147 to Mara Return Volatility Mar-09 to Sop-13 Return Volatility 49r-18 to Sop-18 &1ST Volatility dc-02 to Sop-13 More Voladity Rat/Vol Equity 133% 128% ea 3% 378% 223% 187% 189% 113% 8.0% 20.3% 392% Outright. ATM 83% 104% .220% I17% 10.3% 11.4% 135% 79% 5.1% ❑.0% 462% Spread: ATM • 6% 51% 00% -11.3% 67% 8.1% 7.5% ♦6% 20% 4.5% 64% 70.1% Spited. ATM • 2% 79% 56% -18.1% 98% 10.1% 103% 101% 52% 53% 95% 568% Spot AIM • 1M 2% 91% 9.6% •201% 11.3% 9.8% 105% -3.1% 7.1% 5.6% 102% 636% Son Amain Sfl M•nobe9 Ran LP Since the total return (price appreciation + dividends) on the SPX has been positive over the period studied (Dec-02 to Sep-13), the options strategies' studied have underperformed the SPX (see Figure 10). However, after adjusting returns by the level of realized volatility (return/realized volatility) for the entire period, the option strategies had better performance when compared with equity . The lower portfolio volatility of the call strategies is a key attraction for investors who are seeking equity returns but are put off by the typically high volatility of equity portfolios. Figure 10: Comparing performance of equity with various 36M calls rolled after 24M 260 240 • 220 • 200 • 180 160 140 —Equity Outright ATM Spread. ATM - 6% —Spread. ATM • 2% —Spread. ATM - 1M 2% Dei>04 Smarr: ones. Rank Mamba, Wan:et. Cleo-06 DecOS Dec-10 No-12 In the following section we show results for only a select number of strategies studied. The results are largely consistent across other strategies studied and are available in the Appendix. Strategies involving selling 1M options to finance the longer-dated -ATM calls have had higher risk-adjusted returns than equi