Since 2012, Fabio has been an affiliate professor at GEM for the MSc Finance and BIB programs and a master thesis supervisor, and he has served as an adjunct professor in investments and finance at Webster University Geneva since 2009. Previously, he was in business development and marketing positions at Unilever, Bel Cheeses and International Flavors & Fragrances in Brazil, France, Spain, and Singapore. He now manages investment portfolios in the U.S. markets. He earned his DBA in Finance from GEM in 2014.
The previous academic research findings show that the CBOE volatility index (the VIX)
predicts returns on stock market indices, suggesting implied volatilities measured by VIX are
a risk factor affecting security returns or an indicator of market inefficiency. We expand the
prior work by examining the VIX effect on equity portfolios in presence of derivative
strategies such as options.
The effect of volatility timing on the future performance of the market portfolio index (the
S&P 500) combined with option strategies was examined using three option strategies
commonly applied by practitioners: the covered call, the covered put, and the collar. The
CBOE options strategy benchmark indexes (BXM, PUT and the CLL) were employed as
proxies for these strategies associated to the S&P 500 Index. We used the VIX-related
variables - VIX levels and VIX innovations – to measure the relationship of VIX and these
three options strategy indexes.
The framework for this study included the period from 1990 to 2012, and the four subperiods,
1990 – 1997, 1997 – 2003, 2004 – 2007, and 2007 – 2012, which presented different regimes
of market volatility, measured by VIX. Multiple holding period horizons for options-based
strategies were investigated to identify VIX’s effect over time, and the three Fama-French
risk factors were controlled over all periods.
The findings suggest a relationship between the two VIX-related variables tested and the
market portfolio returns when combined with different options strategies, confirming the
predictive ability of VIX on these portfolios. There was a more significant effect on holding
periods of 30 trading days and beyond, depending on the option strategy examined, which
reinforces the VIX mean-reversion feature. Additionally, different symmetries presented,
depending upon the VIX variable and the options strategy. VIX levels showed a positive
effect on future returns of all three options strategies and the S&P 500 Index, and VIX
innovations exhibited a robust asymmetric relationship for the covered put and collar
strategies, as opposed to a positive impact on the future returns of the covered call strategy.
In the four subperiods with different VIX regimes, we found evidence of the VIX effect on
the future returns for all three options indexes, however we did not observe any significant
difference on the intensity of this relationship across the lower and higher volatile subperiods.
The presence of options strategies associated to the S&P 500 index would smooth the returns
in bullish and low volatile years and conversely, reduce their variance and risk during the
bearish and high volatile periods, which would somewhat explain the absence of disparities
on the VIX levels effect under periods of contrasting VIX conditions.