Performance & Volatility
Last valuation date : 24-06-2019
Risk / Return from 02-01-2001
All information for an index prior to its Inception Date is back-tested, based on the methodology that was in effect on the Inception Date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back-tested returns.
The key elements of the index methodology are available upon demand.
Natixis has developed an overlay solution aiming at reducing volatility and drawdown when combined with a long equity investment. The Natixis US Equity Call Overwriting Index objective is to cash in the risk premia embedded in the S&P® 500 Index options by a daily systematic sale of call options. The strikes of the Options are determined on the basis of a momentum “indicator” used to detect changes in market trends. It defines its values according to technical analysis based on moving averages of relative level of the underlying.
The Natixis US Equity Call Overwriting Index is a risk overlay strategy aiming at reducing volatility and drawdown. It intends to cash in the risk premia embedded in the S&P® 500 Index options by a daily systematic sale of call options on the S&P® 500. This strategy is negatively correlated to the S&P® 500 and is adjusted according to market conditions: increasing exposure in volatile markets, and reducing exposure in non-volatile markets. Options are sold on a daily basis with a fixed maturity of 10 business days and held to expiry. The Call option strikes are equal to 102.5% in bullish equity markets and 98% in bearish equity markets. The underlying strategy is expected both to add negative correlation to a long beta allocation and to monetize the dearness of implied volatility. Outperformance versus the benchmark is noticeable in periods of extreme economic distress. Conversely, the index performs poorly when the benchmark rallies consistently, as the strikes of the short call options move deeper in the money.
Why Selling Short-Term Options?
• Selling calls monetizes the dearness of implied volatility as it is statistically higher than realized volatility while providing more gains than losses.
• Selling short term calls also optimizes the carry: reducing the call maturity and increasing the frequency of sale does not statistically increases the risk while increasing the income. Why Variable Call Strikes?
• In bullish equity markets, the risk in short call options increases. Increasing the options strikes to 102.5% enables to mitigate the above risk.
• In bearish equity markets, the risk in short call options decreases. Decreasing the options strikes to 98% enables to cash in the dearness of the implied volatility whilst maintaining an acceptable level of risk.
• A trend following indicator determines the equity market environment (bullish of bearish). When the US equity market is bullish, the index follows an offensive approach by selling high strikes call Options. When the US equity market is bearish, the index follows an offensive approach by selling low strikes call Options.