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Option Strategies and Market Signals: Do They Add Value to Equity Portfolios?

Author

Listed:
  • Sylvestre Blanc

    (Grammont Finance, Derivatives and Portfolio Management, 1095 Lutry, Switzerland)

  • Emmanuel Fragnière

    (HES-SO Valais-Wallis, Business School, ITO, 3960 Sierre, Switzerland)

  • Francesc Naya

    (HES-SO School of Management Fribourg, 1700 Fribourg, Switzerland)

  • Nils S. Tuchschmid

    (HES-SO School of Management Fribourg, 1700 Fribourg, Switzerland)

Abstract

This study explores an innovative approach to incorporating option strategies into equity portfolios. It presents an alternative direction that institutional investors could take to overcome their current challenges, in a context where traditionally diversified portfolios of only equity and fixed-income assets have shown weaknesses that make it difficult for these investors to achieve their performance goals within their risk limits. We test whether a set of well-known backward-looking signals from equities markets and less-researched forward-looking ones from options markets can be used to improve the efficiency of two option strategies, namely covered call and protective put. The trend signal appears to be the one that adds the most value to both strategies. This study also shows that increasing complexity through additional trading rules does not improve the results of the more basic option strategies that make use of the signals.

Suggested Citation

  • Sylvestre Blanc & Emmanuel Fragnière & Francesc Naya & Nils S. Tuchschmid, 2025. "Option Strategies and Market Signals: Do They Add Value to Equity Portfolios?," FinTech, MDPI, vol. 4(2), pages 1-15, June.
    • Handle: RePEc:gam:jfinte:v:4:y:2025:i:2:p:25-:d:1678608
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    References listed on IDEAS

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    3. 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.
    4. Moskowitz, Tobias J. & Ooi, Yao Hua & Pedersen, Lasse Heje, 2012. "Time series momentum," Journal of Financial Economics, Elsevier, vol. 104(2), pages 228-250.
    5. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    6. Annaert, Jan & Osselaer, Sofieke Van & Verstraete, Bert, 2009. "Performance evaluation of portfolio insurance strategies using stochastic dominance criteria," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 272-280, February.
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