Insights | 08.07.20
A Once-Booming Options Strategy on Wall Street Is Misfiring
Some $60 billion is invested in options-based mutual funds, many in call overwriting strategies, according to Barclays Plc estimates. Market observers are concerned that an army of investors deploying the approach are exhausting premiums, making it among a slew of complex strategies now struggling to keep pace with the historic US stock rally. Russell Investments shuttered a $75 million fund this week that followed the options-selling strategy known as overwriting. Like other short-term options-writing strategies, the Russell fund struggled to capture the upside of US stocks while suffering most of the drawdowns. Critics say the selling has suppressed implied stock volatility, hitting the return potential of the trade. After a strong run from 1990 to 2009, the benchmark call-writing gauge has badly trailed the S&P 500 Index over the last decade. Call overwriting funds have suffered almost uninterrupted outflows over the past year, according to Barclays.
Read the full article on Bloomberg.