The CBOE Collar Index (CLL)

by Jay Pestrichelli on May 10th, 2013

I’d like to introduce everyone to an index that has been around since 2008, the CLL. CLL is an index designed to illustrate how a hedged portfolio using long puts and short calls will perform. It is a benchmark that few people know about, but essentially follows the collar strategy on a theoretical S&P 500 collar position. You can enter that into any of your stock charting tools to see its performance over time.
As a reminder, a collar is a tactic designed to protect a long position by purchasing puts as protection and pays for it by selling calls. These two option positions limit the performance of the long position to stay within the strikes of the put and call. There is still usually a price for this protected position, but will provide a portfolio of lower volatility and limited losses. Here is an example of a Profit-Loss chart of a collar:
The CBOE has created a micro-site to outline the process used to create the index, so here is the link: CBOE CLL Micro-Site

Here is the tactic used to create this index
  • Hold stocks in the S&P 500
  • Buy a 3 month SPX put 5% below the market
  • Sell a 1 month SPX call 10% above the market
This index is referred to as a “95-110” because of the levels of protection and upside limitation. Said another way, the index is designed to limit losses to 5% (95% of holdings) and restrict upside movement to 10% (position stops gaining value at 110% in a single month).
As with most hedged strategies, the CLL lags in up years and outperforms in down years. For example,  in the past 12 months CLL has gained about 12% while the S&P 500 is up 20%. 
If you’re hedging, this is an interesting benchmark to use to tell if the complication you’ve added to your portfolio is worth it, or if just following this very basic tactic ends up doing better.

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