New SPRFI Buffer Index Had Lower Volatility and Higher Risk-Adjusted Return

Matt Moran
February 7, 2024

The Cboe S&P 500 15% Buffer IC Index Series (SPRFISM) offers a nuanced perspective on risk management by tracking a range of indices based on hypothetical options strategies linked to the S&P 500 Index. Let’s take a look at what this means and how SPRFI has performed historically.

SPRFI is designed to measure the performance of a portfolio of a series of indices that track hypothetical options strategies based on the S&P 500 Index. Each index in the series is designed to track the returns of a hypothetical investment that over a period of approximately one year seeks to provide protection against the first 15% of losses due to a decline in the S&P 500 Index while providing participation up to a capped level. The capped level is determined on each annual roll date.

When compared to the S&P 500 Index since 2007, the SPRFI had less severe maximum drawdowns, lower volatility, and a slightly higher Sharpe Ratio (see below for charts and more details). 

Less Severe Drawdowns

The SPRFI tracks a hypothetical strategy that seeks to provide a buffer against large downside moves of the S&P 500 Index. The chart below shows that the worst drawdowns since 2007 were down 32.76% for SPRFI and down 50.95% for the S&P 500 Index.

Peak-to-Trough Drawdowns (January 2007 - January 2024)

Month-end data for total return (pre-tax) indices are used. Sources: Zephyr and Cboe Global Indices

Heat Map and Buffers in 2008 and 2022

The heat map below shows that SPRFI had often mitigated losses and mitigated gains when compared to the S&P 500 Index in years in which the S&P 500 Index experienced big up- and down-moves.

When compared to the SPRFI, the losses suffered by the S&P 500 Index were 15.6 percentage points worse in 2008, and 14.8 percentage points worse in 2022; note that both of these numbers are close to (but do not exactly match) the 15 percent buffer that is a goal of the SPRFI series of indices.

Risk-Adjusted Returns and Betas

The next chart shows that SPRFI (1) had slightly higher risk-adjusted returns (as measured by the Sharpe Ratio), and (2) had a beta of 0.48 to the S&P 500 Index, indicating that the SPRFI might have potential to serve as a diversifier for some portfolios.

About Cboe Global Indices

Cboe Global Indices is the leading provider of options-based indices and volatility-based indices, with powerful capability to realize complex index concepts backed by the largest pool of derivatives data and supplemented with proprietary pricing algorithms. Cboe Global Indices offers independent index calculation services with real-time distribution channels. Cboe Global Indices also develops option strategy indices available for licensing.

Learn More About SPRFI and Other Buffer Protect Indices

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