Editor's Note
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The end is nigh! For 2012, at least—although if you believe the Mayans, Dec. 21 really is the end. Either way, we here at JoI are closing out the year (or eternity) with an issue focused around options. No, not “options” as in choices—as in whether you should hide in a bunker or hit the holiday sales—but “options” as in derivatives. This issue we’ll be discussing options on indexes and ETFs, to be specific. We kick off with a survey of the ETF options space from the derivatives research crew at BofA Merrill Lynch. Chintan Kotecha and his colleagues discuss the current state of the ETF options market and how such instruments can be used to implement different strategies. Following this, the CBOE’s Matt Moran and Mitch Boraz of Asset Consulting Group tell us more generally how options-based index strategies can help investors navigate the current economic environment. Mark Abssy of the International Securities Exchange is up next with an article about the development of the exchange’s vertical spread indexes that are based on SPY options, followed by David Blitzer, who provides a historical context for the entire issue. Index and ETF options may be fairly recent innovations, but options as a concept date back a few hundred years! Then Jonathan Citrin of CitrinGroup takes a different perspective, pointing out that there’s a dark side to the growing popularity of index-based derivatives. Appearing next is our interview with Dhvani Shah, who took over as CIO of the Illinois Municipal Retirement Fund late last year. IMRF is one of the best-funded pension systems in the state of Illinois, and index-based investments play a sizable role in its allocations. Finally, Rob Arnott and Lillian Wu close out the feature articles lineup with a provocative and rigorous analysis of the troubles faced by companies that make it to the tops of their markets and how that translates into lower returns for their investors. Then Bruce Greig is back, with a crossword puzzle that will test your knowledge of options market terminology, to end the issue on a fun note. Wishing you and yours a happy holiday season (fingers crossed on the Mayan Armageddon)!
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