3 December 2013 US Derivatives Spotlight slightly higher returns at slightly lower volatility vs. outright calls. However, they did have equivalent to slightly higher volatility than some of the call spread strategies (see Figure 11 and Figure 121. Figure 11: 36M calls and spreads rolled after 24M, Dec- )2 through Sep-IS 25% 4 5% 36M 6% Pram Cal 0%:- 0% 2% 4% 6% 8% 0% Annualeed Return SPX Total Rehan • Figure 12: 18M calls and spreads rolled after 12M. Dec- 02 through Sep-13 15% z. 20% 10% 5% 18M 5% Rem. C.all « 19M ATM Cali Sheet I M 2% 18M ATM Cal Ann Prern IBM 5% • • Short 1M Cal • Preen Cal + 2% Am Rem. Cal 16M 5% Short 181,1 1% hem Cell Prem. Call SPX Total Rehm • ,p> 15% 36M ATM Call 36M ATM Call * Ai + She/ I M 2% Ann Prom Cell * 36M6% 36M ATM Cal • Pram + + Shell 36M Sheri 303M 2% 2% Prem. Cal Prom Cal 0% SOW* 0041110.4 bent, fr00116810 SWAM LP 2% 4% 6% Amualtred Return sea. anew* awe scones, here* LP These results are consistent with our previous research showing that implied volatility risk premium is typically rich for short-dated options . That is, 1M implied volatility tends to be higher than 1M realized volatility. So, selling 'expensive' 1M upside call options to finance the purchase of longer-dated calls has generally been attractive. Strategies selling 1M SPX calls have not performed recently Looking again at Figure 10 above, strategies selling 1M calls have, not surprisingly, "banked" close to the entire 2% annualized premia only during market downturns (for instance, compare the performance of ATM calls and ATM — 1M 2% calls for the Oct-07 to Mar-09 period in the table). In the rising markets of Dec-02 to Oct-07, these strategies "banked" -0.8% to 1.2% of the 2% premia depending on the strategy. However, the bull market between May-09 to Sep-13 saw strategies selling 1M options have lower returns than buying outright calls. This is largely due to the Apr-13 to Sep-13 p