### Best Index Options to Sell?

**July 18, 2017** - Equity Options

Which short index options offer the best overall performance? In their June 2017 paper entitled “Which Index Options Should You Sell?”, Roni Israelov and Harsha Tummala explore return and risk properties of short delta-hedged out-of-the-money S&P 500 Index put and call options of various moneyness and maturities. They consider moneyness of -2.5 to +1.0 standard deviations relative to the forward index price. They consider maturities of one, two, three, six and 12 months. They assume daily delta-hedge rebalancing with S&P 500 Index futures to isolate volatility and time effects. They calculate average returns and estimate alphas and betas relative to S&P 500 Index returns. They then calculate three beta-adjusted risk metrics for the returns: (1) volatility; (2) stress-test losses (specified for a 20% one-day adverse S&P 500 Index move as on October 19, 1987); and, (3) 0.1% value at risk (VAR), which approximately translates to a once-in-four-years worst loss. Using daily data for S&P 500 Index options with standard monthly expiration dates (3rd Friday of the month) and for the index itself during late March 1996 through December 2015, *they find that:*