Option-Based Benchmark Indices – A Review of Performance and (In)appropriate Measures

This paper reviews the performance and profitability of different option strategy benchmark indices provided by the CBOE. Using different approaches to measure performance, this study shows that performance measurement of these indices is highly complex. For example, a novel option-factor model is employed to catch the inherent option exposure adequately. Moreover, I show that controlling for time-varying delta exposure is essential when measuring the performance of portfolios containing options. Splitting the sample, I find that outperformance found by previous studies is mostly driven by past times. The profitability of option strategies for private investors is evaluated on the basis of investment products, which are easily investable at low cost.