Book
Enhanced Indexing Strategies: Utilizing Futures and Options to Achieve Higher Performance
Description
John Wiley and sons is publishing our first book, Enhanced Indexing Strategies, in November 2008. This book shows investors how to combine index investing, leveraged portfolio management, and options positions into powerful long-term investment strategies designed to provide higher returns than that of the index alone.
Enhanced Indexing Strategies is divided into concept and strategy chapters. Concept chapters are tutorials that introduce selected topics such as index modeling, reinvestment techniques, or option positions. Then the following strategy chapter develops a long-term investment strategy around a set of indexes and options and analyzes both the potential returns and pitfalls.
It is written in the "article" rather than "academic" style and designed to be accessible. While it contains some limited introductory material to ensure that readers have the necessary fundamentals before entering a discussion, every chapter is targeted to both intermediate and advanced readers, and a working knowledge of options and investing is assumed.
If you have an interest in this topic and have appreciated some of the articles by the author, then you will find this book not only innovative and enjoyable to read but also immediately useful.
Table of Contents
Chapter 1: Owning the Index
| The Story of Indexing |
| Indexing: Strategy or Philosophy? |
| Active Investment Selection |
| Index Investing and the Efficient Market |
| Reconciling Indexing and Active Investing |
| Index Risk and Reward |
| Drift and Noise |
| Momentum, Mean Reversion, and Market Cycles |
| Cycles and Regime Change |
| Understanding Volatility |
| High Performance Indexes |
| Small Cap and Value Premium |
| Stock Migration |
| Additional Factors |
| Forecasting Index Returns |
| Summary |
Chapter 2: Applying Leverage
| Leveraged Investments: Conservation of Risk |
| Using the Leverage Ratio |
| Underwater Investments |
| Debt and Interest Effects |
| Sources of Leverage |
| Margin Loans |
| Futures |
| Options |
| Example: Synthetics |
| Other Debt Sources |
| Managing a Leveraged Portfolio |
| Portfolio Sizing |
| Portfolio Allocations |
| Rebalancing with Leverage |
| Dollar Cost Averaging and Liquidity Preference |
| Reinvesting Leveraged Gains |
| Summary |
Chapter 3: Indexing with Synthetics and Futures
| Asset Allocation |
| Index Portfolio Returns |
| Applying Leverage |
| Holding Synthetic Positions |
| Transaction Costs |
| Expected Returns and Reinvestment |
| Adding Portfolio Volatility |
| Random Scenarios with Monte Carlo |
| Margin Calls |
| Substituting Futures |
| Summary |
Chapter 4: Capturing Index Appreciation with Calls
| Intuitive Option Pricing |
| Options as Potential Liabilities |
| Strike Prices |
| Time and Volatility |
| Dividends and Interest Rates |
| Following an Option |
| Risk Components of Various Options |
| Capturing Appreciation with Options |
| Daily Cost of Options |
| Volatility Skew |
| Uneven Appreciation |
| Option Analysis |
| Marginal Returns—Extending Time or Lowering Strike |
| Out-of-the-Money |
| Monthly Returns of Calls |
| More about Volatility |
| Summary |
Chapter 5: Leveraged Covered Calls with Futures
| Covered Calls as a Source of Income |
| Position Details |
| Expected Strategy Returns |
| Annual Return Backtests |
| VIX Modifications |
| Asset Allocation |
| Additional Analysis |
| Summary |
Chapter 6: Rolling LEAP Call Options Explained
| Understanding LEAP Calls |
| LEAPs—by the Greeks |
| One Year Later |
| Rolling LEAPs Forward |
| Roll Cost Prediction |
| Estimating Average Returns |
| Investing Cash Flow |
| Capturing Appreciation |
| Rolling Up |
| Selecting Indexes and Strike Prices |
| Market Drops and Volatility Spikes |
| LEAP Covered Calls |
| Summary |
Chapter 7: Long-Term Returns Using Rolled LEAPs
| Strike Price Selection |
| Sector Performance: 1999 to 2006 |
| Sector Portfolio Returns |
| Rebalancing |
| Higher Performance Portfolios |
| Reinvestment Issues |
| Covered Calls and Midcaps |
| Covered Calls with Sectors |
| Summary |
Chapter 8: Long and Short Profits With Call Spreads
| Understanding Debit Spreads |
| Bull Call Spreads |
| Call Spreads and Appreciation |
| Spreads and Skews |
| Early Exit |
| Staggered Exit |
| Diagonal Call Spreads |
| Long/Short Portfolios from Diagonals |
| Early Exit and Theta |
| Calendar Call Spreads |
| LEAP Calendar Calls and Early Exits |
| Cycling Investment Gains |
| Reinvestment Strategies |
| Constant Investment and Hybrid |
| Index Regime Change |
| Summary |
Chapter 9: Cycling Earnings Using Spread Positions
| Short Option Selection |
| Long Option |
| Creating the Diagonal Spread |
| Option Portfolio |
| Cycling Fractional and Fixed |
| Faster Reinvestment |
| Transaction and Spread Costs |
| Fast Cycling with Calendars |
| Sample Run |
| Volatility Modeling |
| Weekly Volatility Simulation |
| Weekly Strategy Returns |
| Summary |
Chapter 10: Practical Hedging with Put Spreads
| About Put Options |
| Selling Puts versus Covered Calls |
| Seller Risk in Pricing |
| Protecting Portfolios |
| Puts, Futures, and Leverage |
| Diversification and Correlation |
| Collared Portfolios |
| Bear Put Spreads and Speed Bumps |
| Bull and Calendar Put Spreads |
| Calendar Put Spread |
| Deep-in-the-Money Calendars and Diagonals |
| Rolling LEAP Puts |
| Rolling LEAP Calendar Spread |
| Summary |
Chapter 11: LEAP Puts and Three Ways to Profit
| Portfolio Safety Nets |
| Expected Returns and Hedging Analysis |
| Correlated Indexes using SIMTOOLS |
| Correlated Protected Portfolios |
| LEAP Calendar Put Spreads |
| LEAP Calendar Put Portfolios |
| Historical Performance |
| Put Writing with LEAPs |
| Expected Returns |
| Scenarios |
| Summary |
Chapter 12: Managing the Leveraged Multistrategy Portfolio
| The Question of Alternative Assets |
| The Solution: Own the Producer |
| ProShares ETF Analysis |
| Multiplier Leverage Effect |
| Learning from Failure |
| Asset Management Overview |
| Security Selection |
| Long and Short Strategy Combination |
| Strategy Selection |
| Minimum Investment Sizes |
| Index Exposure |
| Summary |
Final Words
Appendix: Listing of Index ETFs and Futures
About the Author
Index