Study Shows Collar Strategies Outperform Buy And Hold
The Options Industry Council Announces New Study Finds Collar Strategies Outperform Buy And Hold
Chicago – September 23, 2009
The results of a new study examining the use of options in a collar strategy (both active and passive implementations) on the PowerShares QQQ™ exchange-traded fund (ETF) show it provides superior returns to the traditional buy and hold strategy while reducing risk by almost 65%.
The Options Industry Council (OIC) is pleased to note the study reaffirms the risk management potential of equity options, finding that during the entire 10-year study period, including the sub-periods around the tech bubble and credit crisis, collars significantly outperformed the QQQ, providing much needed capital protection.
“Loosening Your Collar: Alternative Implementations of QQQ Collars,” by Edward Szado and Thomas Schneeweis, looked at data from March 1999 to May 2009. It concluded that over the entire 122 month period the passive collar returned almost 150%, while the QQQ lost one-third of its value. The active collar outperformed both strategies and returned more than 200%.
Additionally, the study simulated a collar on a small-cap mutual fund. The return of the active mutual fund collar was four times the return of the fund, while the standard deviation was about one-third lower. The study was conducted by the Isenberg School of Management’s Center for International Securities and Derivatives Markets (CISDM) at the University of Massachusetts.
This is the third in a series of studies OIC has helped to support, studies which demonstrate the effectiveness of implementing options strategies on specific products over specific time periods covering a variety of market conditions. By supporting these studies in cooperation with CISDM, OIC remains dedicated to its mission of providing education and research to institutional investors. The study is available to all investors at www.optionseducation.org/institutional/research/pdfs/qqq_collar_study.pdf.
OIC is an industry cooperative funded by the Boston Options Exchange, Chicago Board Options Exchange, International Securities Exchange, NASDAQ OMX PHLX, NASDAQ Options Market, NYSE Amex Options, NYSE Arca Options, and The Options Clearing Corporation. OIC was formed in 1992 to educate investors and their financial advisors about the benefits and risks of exchange-traded equity options. OIC’s resources include: The Options Industry Services Help Desk at 1-888-OPTIONS, educational Web sites at www.OptionsEducation.org, www.OptionsEducation.org/advisor and www.OICoptions.com, evening seminars throughout the continental United States and Canada, instructional DVDs and educational literature and software.
New to Option Selling? Join Option Genius!
The rewards of options investing can be far greater than the potential gains of buying or selling stock. However, the risks are also greater. For those of us who love the extra challenge of option investing, it is worth every minute of time you spend.
There are many websites that promote options trading which costs big bucks but you should be able to find a trustworthy service that introduces options trading for free. At OptionGenius, we offer stellar option selling products and training resources for your option investing needs. Head over our blog and check out our products and training section and receive professional option trading education.
So make the first step and dedicate some time to learn how to use options the smart way. Got something to share? Please feel free to leave your comments below.
If you have any questions, please feel free to leave your comments below and be sure to check out the awesome goodies in our blog section for insightful options trading strategies.
If you are not onboard, maybe it’s time to join. Got questions? Please feel free to leave them in the comment section below and check our blog post for more options selling and options commission advisory and tips.
Don’t forget to check out our blog for awesome online investing and options trading updates. Also, please browse our products and training section and subscribe to our best options trading newsletter here.
Leave a Comment