On Friday, the Chicago Board Options Exchange? (CBOE?) began disseminating values for its new benchmark index, the CBOE Low Volatility IndexSM?(ticker: LOVOL). ??
According to a press release on Thursday, the CBOE LOVOL Index has been designed for investors who have shifted from investing in riskier assets to lower-volatility assets. The new index will give investors the ability to replicate an investment strategy that has less downside volatility in a portfolio of S&P 500? stocks, while still preserving the majority of market gains.
The CBOE LOVOL Index combines two of CBOE’s most popular strategy benchmark indexes: the CBOE S&P 500 BuyWrite Index (BXMSM) and the CBOE VIX Tail Hedge IndexSM (VXTHSM). ?The LOVOL Index bridges the space between the BXM and VXTH strategies:
- The BXM strategy cushions returns against market downturns in exchange for lower returns in more bullish markets.
- The VXTH strategy provides substantial protection against severe downturns in exchange for lower returns in less volatile markets.
Here’s additional language from the press release:
The CBOE LOVOL Index measures the performance of a portfolio that overlays SPX and CBOE Volatility Index? (VIX?) calls over the S&P 500 Index. Specifically, the index is obtained by holding a portfolio of S&P 500 stocks and simultaneously selling SPX calls and buying one-month VIX 30-delta calls on a monthly basis.
Or in plain English, according to Barron’s Brendan Conway, this index tracks the S&P 500, plus the returns of a ?covered call? strategy of selling bullish options, plus buying ?disaster insurance? options on the VIX index.
CBOE plans to disseminate the CBOE LOVOL Index value every 15 seconds during the trading day. The index values will be available from quote data vendors and on CBOE’s website at?http://www.cboe.com/LOVOL.