“What’s measured, improves” – Peter Drucker

The growing adoption of index option writing strategies by institutions, consultants, advisors and individuals motivates us to share our thoughts on the current state of benchmarking option strategy performance. Despite the inherent ‘structured’ payoffs of option strategies, their diversity and flexibility can be both blessings and curses for allocators, particularly in years like 2018. While no easy answers exist, the ‘options’ for benchmarking risk and performance of option strategies continue to expand and evolve toward the benchmarking standards of more widely accepted alternative asset classes.

Just as investors solved for hedge funds’ risk and performance measurement challenges with innovations like the composite manager indexes offered by Hedge Fund Research Inc. (“HFRI”) or the development of multi-factor performance indexes, investors are solving for similar challenges inherent in option strategies. Hence, we believe a broader appreciation for and understanding of the nuances of index option writing strategies will empower investors with the investment context that is essential to long-term asset allocation inclusion. A reduction in relative performance ‘mysteries’ can help to solve one of the bigger challenges for option strategies which, in turn, will create the potential for increased adoption of option strategies in a variety of portfolio contexts.