DAXplus Covered Call Index. Deutsche Börse AG Frankfurt am Main January 2006

Transcription

1 DAXplus Covered Call Index Deutsche Börse AG Frankfurt am Main January 2006

2 Index-option strategies generate excess return with lower risk as well as performance benchmarks Possible use cases for index-option strategy indices A. Benchmark B. Investment tool Investment benchmark for investors to find the right option strategy Allows investors to quantitatively compare the performance of their portfolio to broad benchmark index Index simulates the behavior of a passive buy-and-hold option strategy Option-based strategies are investment tools that can be tailored to suit any specific riskreturn profile of an investor Tradable and liquid index-option strategies can serve as a perfect underlying for passive investment vehicle Main target: outperform underlying index 1

3 With DAXplus Covered Call, Deutsche Börse introduces the first derivatives strategy index Overview DAXplus Covered Call Covers index option strategy on DAX index Start on 23 January a) Entirely rule-based, the index is transparent and easy to replicate b) Historical analysis underlines the potential to outperform the total market c) DAXplus Covered Call shows better performance than DAX with lower volatility a) DAXplus Covered Call generates significant outperformance in sideways and bear markets 2

4 1 Index concept and calculation 3

5 1 DAXplus Covered Call: A transparent and strongly rulebased indexed option strategy Overview index concept Universe Selection criteria Rolling Process Index is replicated through DAX portfolio and OTM Call Options Long: DAX 30 index portfolio Short: DAX 30 5% OTM call option Selection of relevant DAX 5% OTM call option with expiry date between 13:00 and 13:15 CET Monthly selected call option has a remaining expiration of 1 month Moneyness of 5% OTM Rolling process is done on a monthly basis Inclusion price is the volume weighted average of bids between 13:15 and 13:45 CET Transparent rolling process Highly transparent and understandable index concept to follow a buy-write option investment strategy based on DAX 4

6 1 DAXplus Covered Call investment strategy combines a long equity portfolio with a short call position Construction details Schematic payoff profile Profit/Loss Index Covered Call Short Call Easy strategy to hedge a long DAX portfolio All components are listed products Call writing generates additional premium Well-known trading strategy Value of index at expiry 5

7 1 Index history as well as forward calculations are performed with the same formula Index calculation Non-rolling days Non-Rolling days Rolling days Rolling days CC t = DAX DAX s t C t C 0 CC s CC s DAX C' s s = CC s m DAX s m C' 0 CC t CC s DAX t DAX s C t C 0 = covered call index at time t = settlement value of covered call index on last rolling day = last price of DAX before time t = settlement price of DAX on last rolling day = last price of call option before time t = inclusion price of new call option on last rolling day CC s = settlement value of covered call index on last rolling day CC s-m = settlement value of covered call index one rolling before DAX s = settlement price of DAX on last rolling day DAX s-m = settlement price of DAX one rolling before C s = settlement price of old call option on expiry day C 0 = inclusion price of old call option one rolling before 6

8 2 Performance Measurement 7

9 2 DAXplus Covered Call shows a better performance than DAX Historical time series of DAXplus Covered Call compared to DAX Outperformance of DAXplus Covered Call [in %, base 1992] DAXplus Covered Call DAX Since 1992 DAXplus Covered Call had an outperformance of 33% DAXplus Covered Call had an average yearly performance of 15,46% Since beginning of 2003 DAXplus Covered Call has generated an impressive outperformance compared to DAX 8

10 2 DAXplus Covered Call has decent outperformance of DAX from January to September Monthly analysis of performance behavior Average monthly performance [in %, base 1992] Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2,3 2,9 3 4,1 3,7 3,4 3,4 3,1 2,8 From January to September DAXplus Covered Call has shown a better performance than DAX 1,3 0,9 1-0,1 0,3-0,1 0,5 1,4 1,5 1,4 0,9 In ¾ of the year, the Covered Call strategy generates a higher yield -2,1-1,5-5 -5,3 DAXplus Covered Call provides a return buffer in seasonally bad late summer months (Aug, Sep) DAX Covered Call 9

11 2 Portfolio performance figures underline the attractive risk-return profile of DAXplus Covered Call Index Overview of different portfolio performance key figures Annual index key figures (base 1992) DAXplus Covered Call DAX 30 The covered call strategy with 1 month rolling and 5% OTM shows better performance key figures than DAX Average annual performance Annual volatility Covariance to DAX % 25.39% 6.13% 13.76% 27.71% 7.09% (=Variance) DAXplus Covered Call generates 1.7 percentage points higher performance than DAX with 2.32 percentage points lower volatility Beta CAPM yield Jensen s alpha % % - A nearly 10bp higher Sharpe Ratio of the Covered Call strategy underlines the attractive risk/return ratio Treynor ratio Sharpe ratio Modigliani's M-square % % DAXplus Covered Call Beta of 0.86 shows that covered call strategy can be expected to rise and fall more slowly than the market 10

12 3 DAXplus Covered Call Index offers higher return with lower risk compared to DAX Comparison of return and volatility Risk/Return Matrix Return [Avg annual performance] 16% 15% 14% 13% 12% 11% 10% CC (base 92) DAX (base 92) 25,0% 25,5% 26,0% 26,5% 27,0% 27,5% 28,0% Risk [Annual volatility] The risk/return matrix underlines the lower risk of the covered call strategy Investors get access to better return with more than 2 percentage point lower volatility The use of derivatives in the covered call strategy implements a buffer mechanism for a pure DAX investment 11

13 4 DAXplus Covered Call generates significant outperformance in sideways and bear markets Average daily performance Outperformance of DAXplus Covered Call vs. DAX [in %points] In sideway and bear markets the covered call index performed better than DAX In strong bull markets, DAX slightly outperforms the covered call strategy -12 bull sideway bear Covered call strategy builds healthy buffer mechanism in sideways and bear markets 03/03-09/03 09/01-03/02 09/03-01/04 10/97-07/98 10/98-03/00 12/92-12/ 93 07/95-07/97 08/04-03/05 12/ 93-06/95 03/05-05/05 01/04-08/04 10/02-03/03 03/00-09/01 08/97-10/ 97 03/02-10/ 02 '09/03 07/98-10/ DAX performance 12

14 DAXplus Covered Call: A perfect underlying for structured products Possible applications Underlying for Structured Products Index allows easy tracking for structured products and investment funds / ETFs Investment function For investors with a strategic investment perspective Information and benchmarking Benchmark for index option strategies as well as benchmark for single stocks call writing Splendid index-underlying for the construction of structured products focusing on sophisticated passive index options strategies Investment history determines a viable long-term equity-long investment strategy with an option-based outperformance feature 13

15 Fast Facts about DAXplus Covered Call Index Benchmarking 1) compared to DAX Index features DAXplus Covered Call started on 23 January 2006 DAXplus Covered Call contains the DAX index and a DAX Call Option Selection criteria % OTM ODAX Call Option New option must have maturity of 1 month DAX DAXplus Covered Call 1) Indexed at 100 points on 31 Dec 1992 Index DAXplus Covered Call ISIN DE000A0C4BY2 REUTERS.DAXCC Bloomberg DXCC Index methodology Adjustment time: On each Eurex expiry day (3rd Friday a month) after 13 CET Inclusion price: Volume weighted average of bids between 13:15 and 13:45 CET Price sources: Xetra and Eurex 14

16 Contact Heiko Geiger (Marketing & Sales) Issuer Data & Analytics Sarah Reiß (Index Development) Issuer Data & Analytics DISCLAIMER: DAX, MDAX, TecDAX, eb.rexx and DAXplus are registered trademarks of Deutsche Börse AG. This financial instrument is neither sponsored nor promoted, distributed or in any other manner supported by Deutsche Börse AG (the Licensor"). Neither the publication of the Index by the Licensor nor the granting of a license regarding the Index as well as the Index Trademark for the utilization in connection with the financial instrument or other securities or financial products, which derived from the Index, represents a recommendation by the Licensor for a capital investment or contains in any manner a warranty or opinion by the Licensor with respect to the attractiveness on an investment in this product. Detailed product information: indices 15