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Enhancing Portfolio Performance Using Option Strategies: Why Beating the Market is Easy

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  • François-Serge Lhabitant

    (HEC-University of Lausanne)

Abstract

The rapid growth of the use of options in portfolio management has been accompanied by a variety of claims regarding the performance of options strategies. In particular, many investors believe that they can enhance the performance of their pure-stock portfolios using systematic covered-call writing or protective put buying. Surprisingly, the results between similar studies from many brokerage firms, large banks or even academics devoted to these strategies differ considerably, and there is no clear evidence on whether a specific options strategy is superior. In this paper, we will review the results from the major research studies on options strategies and we will empirically examine the outcomes of such strategies on the Swiss market using various performance measures. We will also theoretically explain why some strategies regularly appear to outperform on a "risk" adjusted basis. Finally, we will show that when correctly measuring performance, these strategies do not dominate anymore.

Suggested Citation

  • François-Serge Lhabitant, 1998. "Enhancing Portfolio Performance Using Option Strategies: Why Beating the Market is Easy," FAME Research Paper Series rp1, International Center for Financial Asset Management and Engineering.
    • Handle: RePEc:fam:rpseri:rp1
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    Cited by:

    1. Akuzawa, Toshinao & Nishiyama, Yoshihiko, 2013. "Implied Sharpe ratios of portfolios with options: Application to Nikkei futures and listed options," The North American Journal of Economics and Finance, Elsevier, vol. 25(C), pages 335-357.

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