usingoptionsforriskmanagementandtoenhanceincomeandrisk-adjustedreturns-110107034742-phpapp01

Using Options for Risk Management and to Enhance Income and Risk-adjusted Returns For the Hong Kong Society of Financial Analysts Saturday, 30th August 2008 9:30 a.m. – 12:00 noon HKUST Business School Central 15th Floor, The Hong Kong Club Building 3A Chater Road, Central, Hong Kong

Presentations by:

and

Bud Haslett, CFA, FRM Chief Executive Officer Miller Tabak Capital Management New York

Matt Moran, JD Vice President Chicago Board Options ExchangeÂŽ Chicago

Topics to Be Covered 1.

2.

3.

4.

5.

6.

7.

8.

Historical Price Changes Worldwide Derivatives Markets – OTC and Exchange-Listed Detailed Analysis of Options, Including Inputs to Pricing, and Evaluation of Risk Determinants (the "Greeks") Strategies to Lower Portfolio Volatility – Protective Puts, BuyWrites, Collars, and others Benchmark Indexes for Strategies to Lower Portfolio Volatility – BXM, BXY, PUT, etc.

Benchmark Indexes for Volatility-based Strategies – VIX, VPD, OVX, etc.

Volatility-based Strategies Conclusion

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

2

1.

Historical Price Changes

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

3

One-Year Change in Select Equity Prices (July 31, 2007 - July 31, 2008)

130% 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

0% Southwest Air Down 11% S&P 500 TR Down 60% Citigroup Down 63% American Air Down 66% GM Down 81% United Air 31-Jul-08

30-Apr-08

31-Jan-08

31-Oct-07

31-Jul-07

Daily Closing Prices, re-scaled to 100% on July 31, 2007

How can diversification and risk management help investors?

% Change in stock prices (without reinvested dividends) and in Russell 3000 total return index. Sources: CBOE and Bloomberg.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

4

Financial Times July 25, 2008

Southwest Airlines' Fuel Hedging Boosts Profits

“… Southwest Airlines reported a higher quarterly profit, as hedges locked in most of the low-cost US carrier's jet-fuel expenses well below market prices. Derivatives contracts pinned 80 per cent of Southwest's fuel bill at the average equivalent price of $61 a barrel for crude oil, a commodity whose surge has overwhelmed US airlines and forced them to make unprecedented service cuts, slash jobs and retire older aircraft. … Alaska Air Group, another US carrier that has mimicked Southwest's fuel strategy, also posted a quarterly profit that exceeded analysts' expectations.

Favourable settlements from Southwest's fuel hedges added $511m to the airline's quarterly results. Revenue rose 11 per cent to $2.87bn.

Southwest's derivatives through 2012 are valued at about $4.3bn, and cover 80 per cent of its fuel bill for the second half of 2008 and 70 per cent of next year's expected costs. …”

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

5

Exchange-Traded Funds (ETFs) Prices Since August 2005

FXE SPY

150 M o n th -en d P rices

ETF

Symbol

200

USO

July 2008 CBOE Options Avg. Daily Volume.

CurrencyShares Euro

FXE Trust

S&P Depositary Receipts

SPY (SPDRs)

443,221

USO United States Oil Fund

20,638

100

50

0

795

TLT

TLT Treasury Bond Fd

2,916

GLD

GLD SPDR Gold Trust

30,925

EEM

EEM Markets Index

iShares Lehman 20+Year

iShares MSCI Emerging

43,155

Au g -07

Au g -06

Au g -05

(Aug. 2005 - July 2008) Source: Bloomberg

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

6

Select Indexes Since Dec. 1998 350% Re-scaled month-end prices

300%

MSCI Hong Kong

250% 200%

MSCI World US$

150%

S&P 500

100% 50% 0% Dec-07

Dec-06

Dec-05

Dec-04

Dec-03

Dec-02

Dec-01

Dec-00

Dec-99

Dec-98

(Dec. 1998 - June 2008) All indexes are total return indexes, re-scaled to 100% as of Dec. 1998. Country indexes are in local currencies. Sources: CBOE and Bloomberg

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

7

One-Year Change in Select Indexes (July 31, 2007 - July 31, 2008) 130% 120% 110% 100%

Down 5% MSCI Hong Kong 90%

Down 11% MSCI World

80% 70% 31-Jul-08

30-Apr-08

31-Jan-08

31-Oct-07

31-Jul-07

Daily Closing Prices, re-scaled to 100% on July 23, 2007

How can diversification and risk management help investors?

All indexes are net total return indexes in local currencies, except that the MSCI World Index is in US $. Sources: CBOE and Bloomberg.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

8

One-Year Change in Select Indexes 110%

Up 4% PUT 100%

Down 1% BXM

Down 11% S&P 500 (TR)

90%

80% 31-Jul-08

31-May-08

31-Mar-08

31-Jan-08

30-Nov-07

30-Sep-07

31-Jul-07

Daily Closing Prices, re-scaled to 100% on July 23, 2007

How can diversification and risk management help investors?

(July 31, 2007 - July 31, 2008) Sources: CBOE and Bloomberg.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

9

One-Year Change in Select Index Prices

140% 130% 120%

Up 14% VWX

110% Up 6% VPD Up 3% VPN

100% 90%

Down 11% S&P 500 (TR)

80% 70% 31-Jul-08

31-May-08

31-Mar-08

31-Jan-08

30-Nov-07

30-Sep-07

31-Jul-07

Daily Closing Prices, re-scaled to 100% on July 23, 2007

CBOE Lehman 5-Month Constant Maturity VIX Futures Index (VWX) CBOE VIX Premium Strategy Index (VPD) CBOE Capped VIX Premium Strategy Index (VPN)

(July 31, 2007 - July 31, 2008) Sources: CBOE and Bloomberg.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

10

2. Worldwide Derivatives Markets – OTC and ExchangeListed

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

11

Worldwide Derivatives $677 Trillion in Worldwide Derivatives $700,000 $600,000

O-T-C Derivatives

$500,000 $400,000

Exchange-listed Options Exchange-listed Futures

$300,000 $200,000 $100,000 $0 Dec.2007

Dec.2006

Dec.2005

Dec.2004

Dec.2003

Dec.2002

Dec.2001

Dec.2000

Notional Principal in $US Billions - Amounts Outstanding Source: BIS Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

12

O-T-C Derivatives $596 Trillion Notional in Dec. 2007 $600,000

Unallocated

Credit default swaps

$400,000 Commodity contracts

Equity-linked contracts

$200,000 Interest rate contracts

Dec.2007

Dec.2006

Dec.2005

Dec.2004

Dec.2003

Dec.2002

Dec.2001

Dec.2000

$0

Foreign exchange contracts

Notional principal in US $ Billions – amounts outstanding. Source: BIS Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

13

O-T-C Equity Forwards & Swaps O-T-C Equity Forwards & Swaps $2.2 Trillion Notional

$3,000 Asian European US Latin American Other

$2,000 $1,000 $0 D e c .2 0 0 7

D e c .2 0 0 6

D e c .2 0 0 5

D e c .2 0 0 4

D e c .2 0 0 3

D e c .2 0 0 2

D e c .2 0 0 1

D e c .2 0 0 0

Notional principal in US $ Billions – amounts outstanding. Source: BIS Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

14

O-T-C Equity Options O-T-C Equity Options

$6.3 Trillion Notional

$7,000 $6,000

Asian European US Latin American Other

$5,000 $4,000 $3,000 $2,000 $1,000 $0 Dec.2007

Dec.2006

Dec.2005

Dec.2004

Dec.2003

Dec.2002

Dec.2001

Dec.2000

Notional principal in US $ Billions – amounts outstanding. Source: BIS Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

15

Exchange-listed

Equity Index Futures Exchange-listed Equity Index Futures

$1.1 Trillion Notional Asia and Pacific

$1,200

Europe $600

North America Other Markets Dec.2007

Dec.2006

Dec.2005

Dec.2004

Dec.2003

Dec.2002

Dec.2001

Dec.2000

$0

Notional principal in US $ Billions – amounts outstanding. Source: BIS Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

16

Exchange-listed

Equity Index Options Exchange-listed Equity Index Options

$8.1 Trillion Notional

$9,000

Asia and Pacific

D ec .2007

D ec .2006

D ec .2005

Other Markets D ec .2004

$0

D ec .2003

North America

D ec .2002

$3,000

D ec .2001

Europe

D ec .2000

$6,000

Notional principal in US $ Billions – amounts outstanding. Source: BIS Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

17

Leading Futures and Options Exchanges January – May 2008 12,412,577

CME Group Eurex

9,119,227

Korea Exchange

9,096,360 4,531,367

LIFFE

4,369,784

CBOE ISE PHLX

4,075,541 2,061,909

Natl SE of India

1,756,478

NYMEX

1,748,633

Avg. Daily Volume - Preliminary Estimates Based on 104 Trading Days.

Sources: CBOE and FIA.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

18

Select Options & Futures Kospi 200 Options (Korea Exchange)

8,787,780

Eurodollar Futures (CME) E-mini S&P 500 Index (CME) DJ Euro Stoxx 50 Index (Eurex) 5 Year Treasury Note (CME) S&P 500 Index Options (CBOE)

2,981,842 2,291,626 1,646,446 797,215 643,173

January - May 2008 - Avg. Daily Volume - Preliminary Estimates.

Sources: CBOE and FIA. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

19

Growth in Volume in Options and Futures on U.S. Exchanges 28.3 million avg. daily volume in Jan.-May 2008 30,000,000 U.S. Options on Securities (SEC) U.S. Options on Futures (CFTC)

20,000,000

U.S. Futures (CFTC)

10,000,000

0

Jan-May 2008

2007

2006

2005

2004

2003

2002

2001

2000

Sources: FIA and CBOE Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

20

Growth in CBOE Options Volume Avg. Daily Volume at CBOE

6,000,000

4,462,075 5,000,000

3,762,836 4,000,000

2,688,189

3,000,000

1,858,132 1,432,884

2,000,000

1,126,772 1,061,970

1,000,000 0

2002

2003

2004

2005

2006

2007

JanJun08

SEC-regulated listed options are cleared and guaranteed by the AAA-rated Options Clearing Corporation.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

21

Leading CBOE Index and ETF Options 627,236

S&P 500 (SPX) 326,248

SPDRs (SPY)

309,215

iShares Russell 2000 (IWM)

268,858

PowerShares Nasdaq-100 (QQQQ) CBOE Volatility Index (VIX)

99,561

Russell 2000 (RUT)

58,954

S&P 100 (OEX)

52,240

Dow Diamonds (DIA)

40,896

Dow (DJX)

26,066

Nasdaq-100 (NDX)

25,595

Average Daily Volume in January-June, 2008. Source: CBOE.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

22

Select O-T-C Derivatives –

Credit Default Swaps and Equity-linked Derivatives

$58 Trillion in Credit Default Swaps $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0

Credit Default Swaps (O-T-C) Equity-linked O-T-C Derivatives Dec.2007

Dec.2006

Dec.2005

Dec.2004

Dec.2003

Dec.2002

Dec.2001

Dec.2000

Notional Principal in $US Billions - Amounts Outstanding Source: BIS

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

23

Credit Event Binary Options (CEBOs)

Credit Event Binary Options (CEBOs) are the CBOE’s translation of credit default swaps (CDS) to a regulated and centralized marketplace CEBOs pay a fixed amount if a credit event is confirmed in a reference entity.

CEBOs expire worthless if no credit event is confirmed before expiration

Payment is made at the time of the credit event

Contract’s value can fluctuate significantly as perceptions of credit quality change

‘Credit Event’:

Bankruptcy Failure to pay

Contract specifications inspired by language from the 2003 ISDA credit derivatives definitions

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

24

3. Detailed Analysis of Options, Including Inputs to Pricing, and Evaluation of Risk Determinants (the "Greeks")

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

25

Exchange Listed Equity Options

Calls – Right to buy stock at certain price for certain period

Puts – Right to sell stock at certain price for certain period Usually represents 100 shares Limited life – usually expires after third Friday Option Info – 200 DD Jan 50 calls for 1.55

Number of contracts Underlying Security Expiration Date Strike price Call / Put Premium

One or more can be combined with a stock

Two or more can be combined in a spread Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

26

Option Terms to Know

Premium – price paid for the option ($1.55 times 20,000 shares = $31,000)

Intrinsic Value – Parity value of option

Time Premium – Premium minus parity

In-the-money (ITM)– option with parity value

Out-of-the-money (OTM)– option with only time premium

Historical Volatility – past movements

Implied Volatility – anticipated movements in the future

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

27

Inputs to Option Pricing Calls

Puts

Increase in: Stock Price Interest Rates

+(direct) +(direct)

-(inverse) -(inverse)

Strike Price Dividends

-(inverse) -(inverse)

+(direct) +(direct)

Time to Expiration* Volatility

+(direct) +(direct)

+(direct) +(direct)

* For all scenarios except deep in-the-money European style puts Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

28

Inputs to Option Pricing Decrease in: Stock Price Interest Rates

Calls

Puts

-(direct) -(direct)

+(inverse) +(inverse)

Strike Price Dividends

+(inverse) +(inverse)

-(direct) -(direct)

-(direct) -(direct)

-(direct) -(direct)

Time to Expiration* Volatility

* For all scenarios except deep in-the-money European style puts Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

29

Foundation for Option Analysis

Review of the “Greeks”

Delta – change in value based on stock Gamma – change in delta based on stock Theta – change in value based on time Vega – change in value based on volatility

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

30

Foundation for Option Analysis

Delta – price movement in the option based on a small movement in the stock

Commonly called the Hedge Ratio Similar to a bond’s Duration Calls positive delta - Puts negative delta Delta ranges from 0 to 100 (.00 to 1.00) At-the-money has around a 50 delta Also dependent upon time, volatility, rates THINK OF DELTA AS PERCENTAGE CHANCE THE OPTION WILL FINISH IN-THE-MONEY

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

31

How Delta Changes – 118 Days

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

32

How Delta Changes – 15 Days

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

33

Foundation for Option Analysis

Gamma – change in option’s delta based upon movement in the stock

The Delta of the Delta Similar to a bond’s convexity Highest before expiration for at-the-money Lower away from the strike price Lower more time until expiration Gamma tied to time decay and volatility Long an option (Put or Call) = Long Gamma Short an option (Put or Call) = Short Gamma

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

34

Foundation for Option Analysis

Theta – time decay in the option

Options are wasting assets Gradually lose their time premium Long options = negative decay Short options = positive decay

Vega – change in option’s price based on change in volatility

Long options = Long Vega Short Option = Short Vega

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

35

Theta – 118 to 15 Days

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

36

Vega – 21 to 41 Volatility

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

37

What is the Key to Options?

Understanding‌ All of these factors happen at the same time

Theta

Delta

Gamma

ixzt

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

38

Options Provide an Effective Way to:

Take risk-modified and leveraged directional exposures

Provide downside protection

Enhance Returns

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

39

Directional Exposures - Price „

May be as simple as buying calls or puts

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

40

Directional Exposures - Price „

Or more sophisticated like using spreads

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

41

Directional Exposures „

Or contain strategies with calls and puts

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

42

4. Strategies to Lower Portfolio Volatility – Protective Puts, BuyWrites, Collars, and Collateralized Short Puts

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

43

Downside Protection – Many Types 1. Protective Put 2. Collar 3. Bear Put Spread* 4. Bear Call Spread* 5. Combination Bear Spread* 6. Put Spread Collar* 7. VIX Call Options* * Limited Downside Protection Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

44

Downside Protection „

The most popular methods

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

45

Have We Seen These Before?

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

46

Downside Protection

Bear Put Spread – Pay for (Debit) Bear Call Spread – Receive (Credit) Combined into a low cost bearish position

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

47

Downside Protection - Hybrids

Put Spread Collar

Add sale of OTM put to collar Use proceeds of sale to “buy-up” strike price of long put or short call

VIX Call Purchase

Negative correlation with equity prices provides hedging value

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

48

Enhancing Returns

Covered Call the most popular Appears easy on the surface Effective adjustment strategy is critical

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

49

5. Benchmark Indexes for Strategies to Lower Portfolio Volatility – BXM, BXY, PUT, etc.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

50

Key Performance Benchmark Indexes Index

Ticker

Introduced

CBOE S&P 500 BuyWrite

BXMSM

2002

CBOE S&P 500

BXYSM

2006

Russell 2000 BuyWrite

BXRSM

2006

CBOE DJIA

BXDSM

2005

BXNSM

2005

PUT

2007

2% OTM

Data beginning

Website

June 30, 1986

www.cboe.com/BXM

June 1, 1988

www.cboe.com/BXY

Dec. 29, 2000

www.cboe.com/BXR

Oct. 16, 1997

www.cboe.com/BXD

Dec. 30, 1994

www.cboe.com/BXN

June 1, 1988

www.cboe.com/PUT

BuyWrite CBOE

BuyWrite

CBOE

NASDAQ-100 BuyWrite

CBOE S&P 500

PutWrite

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

51

CBOE S&P 500 BuyWrite Index (BXM)

Benchmark for strategy -

buy portfolio of S&P 500 stocks write (sell) cash-settled S&P 500 Index options every 3rd Friday for income

Announced in 2002 Data history back to June 30, 1986 “Innovative Index of the Year” in 2004 More than $30 billion in buywrite funds www.cboe.com/BXM

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

52

CBOE S&P 500 PutWrite Index (PUT)

Benchmark index, announced in June 2007, with price history back to June 1988.

CBOE is publishing daily closing price data.

Bloomberg ticker is PUT [Index] PUT strategy is designed to sell a sequence of onemonth, at-the-money, S&P 500 Index puts and invest cash at one- and three-month Treasury Bill rates.

PUT won Innovative Index of the Year Award at Super Bowl of Indexing www.cboe.com/PUT

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

53

$11 $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $-

$8.71 BXM $8.43 S&P 500

$5.98 - MSCI World (in $)

29-Jun-07

06/30/2000

30-Jun-93

30-Jun-86

Month-end prices for total return indexes, rescaled to $1 on June 30, 1986

Indexes Since June 1986

(June 30, 1986 - July 31, 2008) Sources: CBOE and Bloomberg

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

54

BXY, BXM, PUT and “Traditional” Indexes Total Return Indexes (June 1988* – July 31, 2008)

PUT PutWrite

$1,000

$979

BXY OTM BW $919 BXM $803

$800

S&P 500 $743 $600 30-yr TBonds $484

$400 3-m o.T-Bills $244

$200 $0 Jun-08

Jun-03

Jun-98

Jun-93

Jun-88

Month-end prices (scaled so that all = $100 on inception date of June 1, 1988)

$1,200

* June 1988 is the first month for daily prices for the SPTR, BXY, and PUT indexes. Sources: CBOE & Bloomberg. The BuyWrite Indexes are designed to represent hypothetical buy-write strategies. Like many passive indexes, the BuyWrite Indexes do not take into account significant factors such as transaction costs and taxes and, because of factors such as these, many or most investors should be expected to underperform passive indexes. T-Bills and T-Bonds are represented by Citigroup indexes. See Risk Disclosure at www.cboe.com/BXM for more information.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

55

Returns and Volatility

PUT – CBOE S&P 500 PutWrite Index BXM – CBOE S&P 500 BuyWrite Index BXY – CBOE S&P 500 2% OTM BuyWrite Index

(1 June 1988 – 30 June 2008)

Annualized Returns

15%

PUT

BXY S&P 500

BXM

10%

MSCI World

T-note 5-yr.

5%

Russell 2000

(in US$)

T-bond 30-yr.

T-bill 3-mo.

0% 0%

5%

10%

15%

20%

Standard Deviation of Monthly Returns Sources: CBOE and Bloomberg. The figures above represent total return indexes; Citigroup indexes are used for the fixed income numbers. Time period starts in June 1988 because that is the 1st month for the S&P 500 (TR) & PUT index daily prices. Please see risk disclosures. Past performance is not a guarantee of future returns.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

56

Returns & Standard Deviation For periods ending July 31, 2008 CBOE S&P 500 BuyWrite Index

CBOE S&P 500 2% OTM BuyWrite

CBOE S&P 500 PutWrite Index

S&P 500 (TR)

BXM

BXY

PUT

SPTR

One-Year Annualized Return Three-Year Annualized Return Five-Year Annualized Return Ten-Year Annualized Return Annualized Return Since 1-Jun-88 Annualized Return Since 30-Jun-86

-1.2% 4.5% 6.9% 5.9% 10.9% 10.3%

-4.2% 4.6% 7.8% 5.5% 11.6% n/a

3.5% 7.4% 9.4% 7.7% 12.0% n/a

One-Year Standard Deviation Three-Year Standard Deviation Five-Year Standard Deviation Ten-Year Standard Deviation

10.3% 6.9% 6.3% 11.0% 9.2% 10.2%

11.7% 8.3% 7.9% 12.6% 11.0% n/a

0.69

0.65

Standard Deviation Since 1-Jun-88 Standard Deviation Since 30-Jun-86 Sharpe Ratio* Since 1-Jun-88

Russell 2000 (TR)

Index (TR) Net US$

Citigroup 30-yr Treasury Index

-11.1% 2.9% 7.0% 2.9% 10.5% 10.1%

-6.2% 3.1% 9.9% 6.9% 9.9% 8.9%

-10.9% 6.8% 11.0% 4.0% 7.4% 8.4%

9.1% 3.1% 6.6% 5.7% 8.1% 7.0%

9.5% 6.5% 5.8% 10.3% 8.3% n/a

13.7% 10.1% 9.5% 15.0% 13.7% 14.9%

16.3% 13.7% 14.3% 19.9% 17.6% 18.8%

14.8% 10.8% 10.1% 14.5% 13.9% 14.4%

8.8% 9.4% 9.6% 10.7% 10.1% 10.3%

0.90

0.44

0.31

0.21

0.36

MSCI World

Sources: CBOE and Bloomberg. *Please see BXM paper by Ibbotson at www.cboe.com/BXM for a discussion about caveats and use of Sharpe Ratio.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

57

Source of Returns- Sell “Rich� Options From: Paper by Goldman Sachs. "Finding Alpha via Covered Index Writing," Financial Analysts Journal.

(September/October 2006).

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

58

Gross Monthly Income from Options Premiums Avg. premium received was 1.6% since June 1988.

BXM Index - Monthly Premiums Received as a % of the Underlying Average was about 1.67% per month

5% 4% 3% 2% 1% 0% (June 1986 - June 2008). Source: CBOE. Caution: Please note that the above amounts do not reflect the net amount received, as the buywrite strategy’s stock position does have truncated upside potential.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

59

Recent Select Monthly Statistics Month-end Price

As a % of Underlying

BXM Monthly CBOE Premium Volatility Index Received

Monthly Returns CBOE CBOE S&P S&P 500 S&P 500 500 PutWrite Total BuyWrite Index Return

VIX

BXM

PUT

SPTR

14.22 1.1% Apr-07 13.05 1.3% May-07 Jun-07 16.23 1.5% Jul-07 23.52 1.5% 23.38 3.7% Aug-07 18.00 1.9% Sep-07 Oct-07 18.53 2.1% 22.87 3.3% Nov-07 22.50 2.0% Dec-07 Jan-08 26.20 2.4% Feb-08 26.54 2.8% 25.61 2.7% Mar-08 Apr-08 20.79 2.0% Sources: CBOE and Bloomberg.

0.7% 2.3% -0.1% -2.1% 1.1% 1.4% 2.4% -1.9% 1.8% -5.9% 0.9% 1.7% 2.4%

1.1% 1.9% -0.2% -1.3% 2.0% 1.7% 2.8% -1.1% 1.2% -5.4% 1.7% 1.2%

4.4% 3.5% -1.7% -3.1% 1.5% 3.7% 1.6% -4.2% -0.7% -6.0% -3.2% -0.4% 4.9%

2.3%

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

60

New CBOE Developments in 2008 – - Extended BXM price history back to June 30, 1986 - Plan to introduce a 95-110 collar index with ticker “CLL”

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

61

Studies on BuyWrites

Fund Evaluation Group. Study of BXD and VXD Indexes (2007) at www.cboe.com/BXD http://www.feg.com/documents/EvaluationofBuyWriteandVolatilityIndexes.pdf

•

Callan Associates. An Historical Evaluation of the CBOE S&P 500 BuyWrite Index (BXM). (Oct. 2006). at www.cboe.com/BXM http://www.cboe.com/micro/bxm/Callan_CBOE.pdf

•

Goldman Sachs. "Finding Alpha via Covered Index Writing," Financial Analysts Journal. (September/October 2006).

•

www.888options.com/institutional/research/pdfs/finding_alpha_via_covered_index_writing.pdf

Ibbotson Associates. Feldman, Barry, and Dhruv Roy, "Passive Options-Based Investment Strategies: The Case of the CBOE S&P 500 BuyWrite Index." The Journal of Investing. (Summer 2005). at www.cboe.com/BXM www.cboe.com/micro/bxm/IbbotsonAug30final.pdf

•

Duke University. Whaley, Robert. "Risk and Return of the CBOE BuyWrite Monthly Index" The Journal of Derivatives (Winter 2002).

University of Massachusetts. Schneeweis, Thomas, and Richard Spurgin. "The Benefits of Index Option-Based Strategies for Institutional Portfolios" The Journal of Alternative Investments, (Spring 2001).

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

62

Risk-adjusted Returns Exhibit 6 from the Callan Study

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

63

Exhibit 8 from Callan Associates’ 2006 Study

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

64

Exhibit 9 from Callan Associates’ 2006 Study Rolling 5-Year Annualized Returns

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

65

Exhibit 10 from Callan Associates’ 2006 Study Rolling 5-Year Annualized Standard Deviation

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

66

Exhibit 12 from Callan Associates’ 2006 Study

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

67

Exhibit 17 from Callan Associates’ 2006 Study Annualized Return versus Risk (June 1, 1988 - August 31, 2006) 10.25% Aggressive + BXM

10.00% Moderate + BXM

9.75%

Returns

9.50%

Aggressive

Moderate

9.25% 9.00%

Conservative + BXM

8.75%

Conservative

8.50% 8.25%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0% 11.0% 12.0% 13.0%

Standard Deviation

Measuring the impact of adding CBOE BXM to diversified portfolios. Calculated with monthly rebalancing over the period June 1, 1988 to August 31, 2006. BXM substituted for 10% of large cap equity exposure in each asset mix. In all cases, return is essentially unchanged while risk is reduced, improving the risk-adjusted return as measured by the Sharpe ratio.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

68

Income Graph from 2007 Study by Fund Evaluation Group

The avg. monthly call premium received was 1.84%. www.cboe.com/BXD. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

69

More than $30 Billion in 45 BuyWrite Products Samples include: Ticker

Investment Product

BWC PBN DPD ETW BEO GATEX GSPAX IGA MCN BXU MBS NFJ NAI JPZ PGP BEP VEPBX

BlackRock World Investment Trust Citigroup Funding PISTONS linked to BXM Index Dow 30 Premium & Dividend Income Fund Inc Eaton Vance Tax-MgdGlobal Buy-Write Opportunity Fund Enhanced S&P 500 Covered Call Fund Gateway Fund Goldman Sachs U.S. Equity Dividend and Premium Fund ING Global Advantage and Premium Opportunity Fd Madison/Claymore Covered Call Fund Merrill Lynch 8% Return Notes Linked to BXM Index Morgan Stanley Strategic Total Return Securities (STARS) linked to BXM Index NFJ Dividend Interest & Premium Strategy Fund Nicholas-Applegate International & Premium Strategy Fund Nuveen Equity Premium Income Fund PIMCO Global StocksPLUS & Income Fund S&P 500 Covered Call Fund Inc. (IQ Inv. Adv., Merrill Lynch) Van Kampen Equity Premium Income Fund

BWV PBP

Barclays iPath CBOE S&P 500 BuyWrite Index (ETN based on BXM Index) PowerShares S&P 500 BuyWrite Portfolio (ETF based on BXM Index)

CBOE does not provide endorsements or recommendations for any fund. Investors in some Asian countries might not be permitted to invest in these funds Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

70

Sample U.S. Fund Performance One-Year

ThreeYear

Mkt Return Thru Mkt Return, 1-Aug-2008 Annualized, Thru 1Aug-2008

Standard Beta - Trailing Deviation - 3-yr Thru 31-JulyTrailing 3-yr Thru 31-July-2008

2008

Gateway Fund (GATEX)

0.68%

5.57%

4.34

0.38

Eaton Vance Enh Eq Inc (EOI)

-4.14%

1.29%

7.88

0.76

NFJ Div., Int., & Prem Str Fd (NFJ)

-6.79%

3.51%

7.76

0.70

iShares Russell 2000 (IWM)

-6.82%

2.85%

13.62

1.14

iShares Russell 1000 (IWB)

-11.64%

2.82%

10.12

1.00

Source: www.morningstar.com on 4-August-2008

CBOE does not provide investment advice or recommendations for any funds, including the funds listed above. Please read the applicable prospectus. Investors in some Asian countries might not be allowed to invest in these U.S. funds.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

71

6. Benchmark Indexes for Volatility-based Strategies – VIX, VPD, OVX, etc.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

72

Volatility Indexes at CBOE Index

Index Ticker

速

Options Available?

Website

Yes

www.cboe.com/VIX

CBOE Volatility Index速

VIX

CBOE DJIA Volatility Index

VXD

CBOE NASDAQ-100 Volatility Index

VXN

Yes

www.cboe.com/VXN

CBOE Russell 2000 Volatility Index

RVX

Yes

www.cboe.com/RVX

CBOE S&P 100 Volatility Index

VXO

www.cboe.com/VXO

CBOE S&P 500 3-Month Volatility Index

VXV

www.cboe.com/VXV

CBOE VIX Premium Strategy Index

VPD

www.cboe.com/VPD

CBOE Capped VIX Premium Strategy Index

VPN

www.cboe.com/VPN

CBOE S&P 500速 VARB-XTM Benchmark

VTY

www.cboe.com/VTY

CBOE Crude Oil Volatility Index

OVX

www.cboe.com/OVX

CBOE Lehman 5-Month Constant Maturity VIX Futures Index

VWX GVZ EVZ

www.cboe.com/GVZ

CBOE Gold Volatility Index CBOE EuroCurrency Volatility Index

www.cboe.com/VXD

www.cboe.com/EVZ

www.cboe.com/volatility Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

73

News Clip Barron’s 21st July 2008

”… the current financial crisis has made CBOE's VIX a market darling … … In May, the Mumbai-based National Stock Exchange licensed VIX to create India VIX. CBOE also has agreements with the Taiwan Futures Exchange, Germany's Eurex, and Euronext. VIX indexes will be listed on London's FTSE 100, Amsterdam Exchange Index (AEX), France's CAC 40 and Belgium's BEL20 Index. …

Last week, VIX was applied to crude oil, marking the start of a series of non-stock VIX indexes. By year's end, CBOE will introduce VIX indexes on gold, foreign currencies and interest rates. This will complement Dow (DJX), Nasdaq (VXN), Russell 2000 (RVX) and Standard & Poor's 100 (VXO) VIX indexes. … “ (emphasis added)

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

74

CBOE Volatility Index® (VIX® )

Since 1993 a premier barometer of investor sentiment and market volatility.

In Sept. 2003 new VIX methodology.

Implied volatility index -- measures the market's expectation of 30day volatility implicit in the prices of near-term S&P 500 (SPX) options. VIX is quoted in percentage points, just like the standard deviation of a rate of return, e.g. 23.26.

The SPX options used in the VIX calculation are – O-T-M puts and call covering the entire range of strike prices (the “ volatility skew”) From the nearby and next-to-nearby expiration months for a constant 30-day volatility measure VIX futures in 2004 and VIX options in 2006, with settlement date on Wednesday (30 days before SPX expiration) www.cboe.com/VIX

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

75

Unique Features of Volatility Index Products

Futures Pricing Based on Forward Value of Volatility Index Pricing Can Be Different for a Number of Reasons Wednesday Settlement Special Opening Quotation Price Negative Correlation to Stock Indexes High Volatility of Volatility

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

76

Why Trade Volatility?

Negative correlation to most equity indexes Positive correlation to credit prices Efficient way to manage unwanted market risk Unique properties of volatility create trading opportunities

Historical difference between realized and implied volatility Volatility Term Structure High Volatility of Volatility

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

77

CBOE Volatility Index (VIX) 75

1800 S&P 500 (SPX)

50

1200

SPX

VIX Daily Closing Prices

VIX and S&P 500

25 VIX 2/4/2008

26-Jan-05

01/18/02

01/08/99

01/05/96

01/04/93

01/02/90

0

600

0

Sources: CBOE and Bloomberg. (2-Jan-1990 - 22-July-2008). www.cboe.com/VIX

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

78

Four Volatility Indexes Since Jan. 2007 CBOE Crude Oil Volatility Index (OVX) CBOE Russell 2000 Volatility Index (RVX)

Daily Closing Prices

60

CBOE NASDAQ-100 Volatility Index (VXN) CBOE Volatility Index速 (VIX)

Select volatility indexes at CBOE

50

OVX

40

VXN

30

RVX

20

VIX

10 0 3-Jan-2007

5-Jul-2007

3-Jan-2008

3-Jul-2008

(3-Jan-2007 to 22-July-2008) Sources: CBOE and Bloomberg.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

79

One Year of Prices US Oil Fund ETF (USO) CBOE Crude Oil Volatility Index (OVX) CBOE Volatility Index速 (VIX)

120 USO ETF

100 80

OVX Index

60 40

VIX Index

20 0 23-Jul-2007

23-Oct-2007 23-Jan-2008 23-Apr-2008

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

80

ETFs and Volatility Indexes (July 23, 2007 – July 30, 2008) 200

150

FXE ETF

FXE – CurrencyShares Euro Trust

USO ETF

USO - US Oil Fund

GLD ETF

GLD - SPDR Gold Shares

100

50

0 23-Jul-2007

23-Dec-2007

23-May-2008

OVX

OVX - CBOE Crude Oil Volatility Index

GVZ

GVZ - CBOE Gold Volatility Index

VIX

VIX - CBOE Volatility Index

EVZ

EVZ - CBOE EuroCurrency Volatility Index

Sources: CBOE and Bloomberg Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

81

Three Volatility Indexes Since Jan. 2007 CBOE S&P 100 Volatility Index (VXO)

Daily Closing Prices

40

CBOE Volatility Index (VIX) CBOE DJIA Volatility Index (VXD)

Select volatility indexes at CBOE

30

VXO VIX

20

VXD

10 0 3-Jan-2007

5-Jul-2007

3-Jan-2008

3-Jul-2008

(3-Jan-2007 to 22-July-2008) Sources: CBOE and Bloomberg.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

82

High Volatility of Volatility 132.0%

140% 120% 100%

83.3%

94.2% 78.5%

VIX (spot)

80% 60%

56.0%

VIX Near-term Futures

45.8%

40% 20% 0%

2005

2006

2007

Historic Volatility of Daily Returns (Source: CBOE).

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

83

Volatilities of VIX, Stocks, & Stock Index Historic Volatility in Years 2005, 2006, & 2007 VIX (spot)

150% 132.0%

100%

94.2%

VIX Near-term Futures

GM

83.3%

AAPL GOOG

50%

IBM S&P 500 (SPX)

0% 2005

2006

Historic Volatility

2007

Source: CBOE VIX (spot) VIX Near-term Futures

GM AAPL GOOG IBM S&P 500 (SPX)

2005 83.3% 45.8% 42.6% 38.8% 32.1% 17.9% 10.3%

2006 94.2% 56.0% 41.3% 38.1% 34.0% 14.2% 10.0%

2007 132.0% 78.5% 39.8% 37.6% 24.3% 20.6% 16.0%

Source: CBOE

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

84

Negative Correlations Negative Correlations The VIX and S&P 500 Indexes had a negative correlation of daily returns (-0.85) in 2007.

0.5

VIX and SPX RVX and RUT

VXD and DJX VXN and NDX

0.0

-0.5 -0.76

-1.0 2004

-0.83

2005

-0.82

2006

-0.85

2007

Correlation of Daily Returns for Volatility and Stock Indexes.

Source: CBOE. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

85

Key Dates for VIX Prices Closing Price VIX

SPX

% Change VIX

SPX

Three days on which VIX rose by more than 50% 18.19 358.76 27-Feb-2007 15-Nov-1991 19.22 355.66 23-Jul-1990 20.11 352.20

64.2% 51.7% 51.5%

-3.5% -3.7% -1.7%

Two days on which VIX fell by more than 24% 5-Apr-1994 25.01 1260.32 15-Jun-2006 24.05 1260.68

-24.0% -25.9%

2.1% 2.1%

Seven days on which VIX closed above 43.70 45.74 959.44 8-Oct-1998 10-Sep-1998 45.29 980.19 5-Aug-2002 45.08 834.60 23-Jul-2002 44.92 797.70 31-Aug-1998 44.28 957.28 43.74 1009.06 11-Sep-1998 20-Sep-2001 43.74 984.54

5.1% 14.2% 9.2% 7.3% 11.8% -3.4% 7.8%

-1.2% -2.6% -3.4% -2.7% -6.8% 2.9% -3.1%

Survey of Trading Days from 2-Jan-1990 to 22-July-2008. Source: CBOE. Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

86

Key Specifications & Volume- VIX Futures & Options

Exchange

Futures

Options

CFE

CBOE

VX

VIX

$1,000

$100

Ticker Multiplier Last Day of Trading Expiration Date Trading Hours Avg. Daily Volume

Generally on

Tuesday, the day before expiration date.

Generally on Wednesday 30 days prior to the 3rd Friday of calendar month immediately following the expiring month.

8:30 a.m. – 3:15 p.m. Chicago Time 4,387

102,110

44,640

1,130,515

March 26, 2004

Feb. 24, 2006

(Jan-July 2008)

Open Interest (July 31, 2008)

Launch Date

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

87

VIX Spot, Futures & Options in Feb.-Mar. 2007 On Feb. 27 the S&P 500 fell by 3.5%, the VIX Index rose 64%, and VIX Mar. 07 futures were up 29.5%.

20 VIX Spot 15

3/16/2007

3/2/2007

2/15/2007

5

VIX Nov '07 Futures

2/1/2007

10

VIX Mar '07 Futures

On Feb. 27 the March '07 15.0 VIX calls rose 483%.

2.5 VIX May '07 15.0 Calls

2.0 1.5 1.0

VIX March '07 15.0 Calls

0.5 0.0 3/16/2007

3/2/2007

2/15/2007

2/1/2007

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

88

% Change in Prices on 27 Feb. 2007 S&P 500 (SPX) VIX Nov '07 Futures VIX Mar '07 Futures

-3.5% 3.2% 29.5%

VIX Spot Index

64.2%

VIX May '07 15.0 Calls

77.3%

VIX March '07 15.0 Calls

483.3%

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

89

VIX and VIX Futures in July 2008 30 28

VIX Spot

26 VX July08 Fut 24 VX Nov08 Fut 22 20 31-Jul

29-Jul

27-Jul

25-Jul

23-Jul

21-Jul

19-Jul

17-Jul

15-Jul

13-Jul

11-Jul

9-Jul

7-Jul

5-Jul

3-Jul

1-Jul

The 2-week % change from 1-July to 15-July was 21% for VIX spot, 17% for VIX July’08 Futures, and 8% for VIX Nov’08 Futures. Sources: CBOE and Bloomberg.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

90

Benchmark Indexes and VIX Futures

CBOE Lehman 5-Month Constant Maturity VIX Futures Index (VWX) - reflects the performance of a strategy that systematically holds a "long volatility" position consisting of VIX futures with expiries ranging from 4 to 7 months. The strategy's objective is to maintain a constant maturity exposure to 5-month VIX forward implied volatility. The portfolio is adjusted daily by selling a portion of the 4th month VIX futures and buying an equal amount of 7th month VIX futures, effectively spreading the futures "roll" over each month.

CBOE VIX Premium Strategy Index (VPD) - tracks the performance of a strategy that systematically sells 1-month VIX futures. This index tracks the value of a portfolio that overlays a sequence of short one-month VIX futures on a money market account.

The VIX futures are held until expiration and new VIX futures are then sold. The money market account decreases leverage relative to a stand-alone short position in VIX futures. To further limit risk, the number of VIX futures sold at each roll is set to preserve 75% of the initial value of the portfolio in the event that VIX futures increase by 25 points.

CBOE Capped VIX Premium Strategy Index (VPN) - tracks the performance of a strategy that systematically sells 1-month VIX futures, capped by the purchase of a VIX call option. The short VIX futures position is capped with long VIX calls struck 25 points higher than the VIX futures price, or calls at the closest strike below if this strike is not listed.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

91

Month-end Price Levels -- CBOE VIX Premium Strategy Index (VPD) -- CBOE Capped VIX Premium Strategy Index (VPN) -- CBOE Lehman 5-Month Constant Maturity VIX Futures Index (VWX) -- CBOE Volatility Index (VIX)

200

VPD

150

VPN

100

VWX 50

VIX 0 Jun-04

Jun-05

Jun-06

Jun-07

Jun-08

(June 2004 - June 2008). Sources: CBOE and Bloomberg.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

92

One-Year Change in Select Index Prices

140% 130% 120%

Up 14% VWX

110% Up 6% VPD Up 3% VPN

100% 90%

Down 11% S&P 500 (TR)

80% 70% 31-Jul-08

31-May-08

31-Mar-08

31-Jan-08

30-Nov-07

30-Sep-07

31-Jul-07

Daily Closing Prices, re-scaled to 100% on July 23, 2007

CBOE Lehman 5-Month Constant Maturity VIX Futures Index (VWX) CBOE VIX Premium Strategy Index (VPD) CBOE Capped VIX Premium Strategy Index (VPN)

(July 31, 2007 - July 31, 2008) Sources: CBOE and Bloomberg.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

93

7. Volatility-based Strategies

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

94

Volatility Trading

1.

2.

3.

4.

Negative Correlation?

Mean Reverting?

Implied versus Historical?

Other Issues‌

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

95

Sources of Volatility Trading Ideas

Volatility Report: Macro Themes Relationships Term Structure Relative Volatility Range Volatility Surfaces Ranking Screening/Scanning Correlation/Dispersion Trading Activity Backtesting Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

96

Volatility Report - Relationships Index

Closing

Weekly

52Week

52-Week

52Week

52-Week

10-Day

30-Day

HV

30-Day

IV

Symbol

Value

Change

High

High Date

Low

Low Date

HV

HV

Percentile

IV

Percentile

VIX

24.06

-3.84%

37.57

1/22/2008

9.70

2/22/2007

54.08

91.92

17%

65.33

9%

VXV

24.40

-4.09%

30.29

1/22/2008

11.32

2/22/2007

29.15

53.06

9%

-

-

VXN

26.30

-1.46%

40.77

1/22/2008

14.54

6/15/2007

72.01

88.97

37%

81.48

26%

RVX

29.58

0.51%

42.60

8/16/2007

14.25

2/22/2007

51.92

68.65

7%

59.90

16%

VXD

21.75

-3.76%

34.21

8/16/2007

8.93

2/22/2007

64.34

92.78

15%

-

-

VXO

26.51

-3.00%

38.88

1/22/2008

9.03

2/22/2007

54.52

106.47

21%

-

-

SPX

1353.11

0.23%

1576.09

10/11/2007

1270.05

1/23/2008

14.53

22.19

85%

22.58

68%

SPY

135.62

0.36%

157.52

10/11/2007

126.00

1/22/2008

11.13

20.51

74%

23.19

69%

1.

2.

3.

4.

Spreads between volatility indexes IV and HV percentiles 10-day to 30-day HV Proximity to high and low readings

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

97

Term Structure of Volatility Term Structure of VXN / RVX (2-18-08)

Term Structure of VIX (2-18-08) 27

32 26.07

31.39 30.97

25.91

26

31.39

25.50 25.36

25.93

31

30.42

VXV 25.44

30

VIX 25.02

25

30.27

24.68 24.45

24

24.41

RVX

RVX 29.43

25.17

VXN

29

RVX Spot 28.92

28

28.8

28.4

VXN Spot

28.5 28.2

1.

2.

3.

4.

20 A 08 u gu s N t2 o 00 ve 8 m be r 20 D ec 08 em b er 20 08

Ju ly

20 08

20 08

Ju n e

M ay

20 08

A p ri l

20 08

M ar ch

F eb ru ar y

20 08

23 27 VXN 26.69

26 Fe bruary M arch 2008 2008

April 2008

M ay 2008

June 2008

Relationship between spot and future volatility prices Provides valuable insights into market expectations Is the market fading recent gains or losses in spot?

Is the info. consistent for the various products?

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

98

Changes in Term Structure Term Structure of VIX (2-18-08)

Term Structure of VIX (6-23-08)

27

25 26.07

25.91

26

25.50 25.36

25.93

25.17 24.45

24

23.54 23.43

24.68 24.41

23.43

23.72

23.38

VXV 23.57

23 VIX 22.87

31.39

20 O ct 08 o b e N r o 20 ve 08 m be r D 20 ec 08 em b er 20 08 Ja nu ar y F 20 eb 09 ru ar y 20 09 M ar ch 20 09

20 08

S ep t.

Term Structure of VXN / RVX (6-23-08)

Term Structure of VXN / RVX (2-18-08) 32

A u g.

20 08 Ju ly

20 A 08 u gu s N t2 o 00 ve 8 m be r 20 D ec 08 em b er 20 08

Ju ly

20 08

20 08

Ju n e

M ay

A p ri l

20 08

M ar ch

20 08

22

20 08

23

23.87

23.72

23.51

VIX 25.02

25

F eb ru ar y

23.70

24

VXV 25.44

30

31.39 30.97

31

30.27

28.90

30.42

29

30

28

RVX Spot 28.4

VXN

VXN

29 28.8

RVX

RVX

RVX 29.43

28.92

28.89

28.63

28

VXN Spot

28.5 28.2

RVX Spot

27.63

VXN Spot 27.55

27

27.55

27.55

27.15

27

VXN 26.75 RVX 26.35

VXN 26.69

26

26 Fe bruary 2008

M arch 2008

April 2008

M ay 2008

June 2008

July 2008

August 2008

Se pte mbe r Nov e mbe r 2008 2008

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

99

Relative Volatility Range Select Sector SPDR Relative Volatility Range 2/18/08 -12.53%

XLB-Materials SPDR

-21.59%

XLE-Energy SPDR

-12.69%

XLF-Financial SPDR

-28.29%

XLI-Industrial SPDR XLK-Technology SPDR

-35.91%

XLP-Consum er Staples SPDR

-35.48% -20.24%

XLU-Utilities SPDR

-27.64%

XLV-Health Care SPDR

-33.48%

XLY-Consum er Discretionary SPDR

-40%

-30%

-20%

-10%

0%

Undervalued Premiums (Negative %)Overvalued Premiums (Positive %)

1.

2.

3.

4.

IV forward looking / HV backward looking Compares IV Percentile to HV Percentile Understand the challenges Interpretation is important

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

100

Relative Volatility Range Select Sector SPDR Relative Volatility Range 2/18/08 -12.53%

XLB-Mate rials SPDR

-21.59%

XLE-Ene rgy SPDR

-12.69%

XLF-Financial SPDR

-28.29%

XLI-Indus trial SPDR

-35.91%

XLK-Te chnology SPDR

-35.48%

XLP-Cons um e r Staple s SPDR

-20.24%

XLU-Utilitie s SPDR

-27.64%

XLV-He alth Care SPDR

-33.48%

XLY-Cons um e r Dis cre tionary SPDR

-40%

-30%

-20%

-10%

0%

Undervalued Premiums (Negative %)Overvalued Premiums (Positive %)

Select Sector SPDR Relative Volatility Range 6/23/08 28.03%

XLB-M ate rials SPDR

22.73%

XLE-Ene rgy SPDR XLF-Financial SPDR

17.11%

XLI-Indus trial SPDR

16.77% 10.00%

XLK-Te chnology SPDR XLP-Cons um e r Staple s SPDR

-8.11% 9.21%

XLU-Utilitie s SPDR XLV-He alth Care SPDR XLY-Cons um e r Dis cre tionary SPDR -10%

Undervalued Premiums (Negative %)

2.72% 2.21% 0%

10%

20%

30%

Overvalued Premiums (Positive %)

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

101

Volatility Surfaces SPX Volatility Surface - 2-28-08

VIX Volatility Surface - 2-28-08 1.00

0.40

0.80

0.20 0.00

30

OTM

40

Term

0.40

0

720

0.60

20

40

0

20

OTM

10

30 30

50

0.00

IV

10

0.10

0.3000-0.4000 0.2000-0.3000 0.1000-0.2000 0.0000-0.1000

50

IV 0.20

30

0.30

720

Term

4.

Valuable insights into intricacies of volatility Easily visualize skews, smiles and smirks Pinpoints possibly profitable aberrations Ask why the surface is shaped like it is

5.

Make sure VIX data is based off of futures!

1.

2.

3.

0.8000-1.0000 0.6000-0.8000 0.4000-0.6000 0.2000-0.4000 0.0000-0.2000

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

102

Ranking – IV Percentile S&P 500 Stocks with Highest IV as % of 52 Week Range

Symbol

Underlying Asset

IV

IV

Ratio

HV

Range

Last

IV/HV

Last

S&P 500 Stocks with Lowest IV as % of 52 Week Range

Symbol

IV

IV

Ratio

HV

Range

Last

IV/HV

Last

Trane Inc

4%

16.61

137.15

12.11

Underlying Asset

AMT

AMERICAN TOWER CORP

100%

47.45

113.14

41.94

1

TT

ADI

ANALOG DEVICES INC

100%

47.89

127.72

37.50

2

CBH

COMMERCE BANCORP INC.

9%

21.18

81.01

26.14

EXPRESS SCRIPTS INC [class A]

100%

45.75

125.03

36.60

3

CINF

CINCINNATI FINANCIAL CORP

17%

32.89

89.07

36.93

20%

35.11

111.81

31.40

25%

41.12

121.50

33.85

ESRX

FISV CSCO

FISERV INC

100%

38.19

140.63

27.15

4

FRX

FOREST LABORATORIES INC

CISCO SYSTEMS INC

100%

49.91

146.39

34.10

5

TDC

Teradata Corp.

1.

2.

Ranks stocks for high and low IV Percentile Critical – find out why they are on the list!!! a) b) c)

3.

Takeover Earnings Corporate News - Clinical Trial results, etc.

Interpretation is critical

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

103

Ranking – Ratio of IV to HV S&P 500 Stocks with Highest Ratio of IV to HV

Sym.

Underlying Asset

S&P 500 Stocks with Lowest Ratio of IV to HV

Ratio

IV

IV

HV

IV/HV

Last

Range

Last

Sym.

Underlying Asset

Ratio

IV

IV

HV

IV/HV

Last

Range

Last

CCU

CLEAR CHANNEL COMMUNICTNS INC

214%

96.35

91%

45.07

1

YHO O

YAHOO INC

34%

43.13

42%

126.93

MCO

MOODY'S CORPORATION

187%

75.90

100%

40.65

2

HAR

HARMAN INT L IND INC

36%

54.81

77%

151.57

LH

LAB CORP OF AMERICA HOLDINGS

161%

31.06

83%

19.32

3

CFC

COUNTRYWIDE CREDIT INDS INC

46%

85.87

27%

188.35

WPI

WATSON PHARMACEUTICALS INC

160%

39.01

91%

24.31

4

WAT

WATERS CORP

46%

34.12

67%

73.59

COMPUTER ASSOCIATES INTL INC

56%

34.65

64%

61.70

TLAB

TELLABS INC

1.

2.

3.

151%

83.93

49%

55.46

5

CA

Ranks stocks for high and low IV / HV Ratio Find out why they are here!!!

Distinguish between temporary aberration or real opportunity

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

104

Screening / Scanning Option

Expiration

Option

Stock

Call

Return if Called

Return if Unchanged

Downside

Downside

Stock

Ticker

Month

Strike

Last

Bid

Return

Annualized

Return

Annualized

Break

Protection

Symbol

Symbol

(Year)

Price

Price

Price

(percent)

(percent)*

(percent)

(percent)

Even

(percent)

AJG

AJGDE

Apr08

25

$23.97

$0.85

9.47%

34.10%

5.02%

18.06%

$22.81

4.84%

BAC

BACAH

Jan08

40

$39.30

$0.65

3.49%

139.72%

1.68%

67.27%

$38.65

1.65%

BAC

BACBH

Feb08

40

$39.30

$1.75

6.52%

63.48%

4.66%

45.34%

$37.55

4.45%

BAC

BACBV

Feb08

42 1/2

$39.30

$0.70

10.10%

98.31%

1.81%

17.64%

$38.60

1.78%

BBT

BBTBF

Feb08

30

$27.61

$0.60

11.07%

107.71%

2.22%

21.61%

$27.01

2.17%

BBT

BBTCF

Mar08

30

$27.61

$1.00

12.74%

63.70%

3.76%

18.79%

$26.61

3.62%

BEN

BENBB

Feb08

110

$105.9 6

$4.00

7.89%

76.72%

3.92%

38.17%

$101.96

3.78%

BEN

BENDB

Apr08

110

$105.9 6

$7.60

12.04%

43.33%

7.93%

28.55%

$98.16

7.36%

BEN

BENDC

Apr08

115

$105.9 6

$5.50

14.67%

52.82%

5.67%

20.43%

$100.26

5.38%

Scan massive trading data for valuable insights 2.

Very powerful when combined with backtesting 3.

Don’t confuse macro issues as micro opportunities 4.

Understand what the numbers are telling you and the interaction between factors Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

1.

This is meant to provide general information; it is not to provide investment advice.

105

Correlations - Dispersion Ticker

Equiv

Beta

Index IV A

Corr

Specific

Contribution

HV

IV Mean

%

Variance

To Index Voly

%

%

IV/HV

Vol

Weight

Weight

Ratio

%

Multipli er

7.09

1.3

43.11

23.63

0.02

26.19

21.41

0.82

0.33

0.11

1

AA

10.39

1.26

33.25

30.95

0.04

32.82

39.31

1.2

0.26

0.25

1

AAPL

10.95

0.54

21.54

21.22

0.05

21.73

27.43

1.26

0.4

0.67

1

ABC

7.53

-0.18

-5.25

29.94

0

29.98

26.05

0.87

0.29

0.07

1

ABI

7.6

0.7

21.93

26.95

0

27.62

24.21

0.88

0.31

0.04

1

ABK

10.44

0.97

59.95

11.23

0.01

14.03

16.89

1.2

0.62

0.07

1

ABT

10.23

1.16

62.73

12.44

0.09

15.98

18.85

1.18

0.54

0.65

1

ACE

9.02

0.97

47.87

15.48

0.02

17.63

18.35

1.04

0.49

0.15

1

ACS

11.45

-0.01

-0.84

14.53

0

14.53

19.18

1.32

0.6

0.04

1

ADBE

15.67

1.36

60.26

15.57

0.03

19.51

35.27

1.81

0.44

0.18

1

1.

2.

3.

Select

Ability to go long or short correlation Profit from large movements in individual stocks versus the index (or vice versa) Tends to experience periods where it “sets-up” and periods when it doesn’t

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

106

Trading Activity Quantity

Symbol

Expiry

Strike

Type

Price

Side

Exch.

Volume

Ivol

Delta

OI(t)

1300

ADBE

Feb08

35

Puts

$0.45

SELLER

ISE

1933

37.90%

-0.495

3788

3000

AIG

Jan09

55

Calls

$4.45

BUYER

ISE

3000

42.47%

0.35

17458

1502

AIG

Feb08

65

Puts

$19.50

BUYER

ARCA

3004

229.42%

-1

18581

1502

AIG

Feb08

65

Puts

$19.50

BUYER

ARCA

1502

236.25%

-1

18581

1500

AIG

Jan09

55

Calls

$4.45

MIDMKT

ISE

4520

42.52%

0.3425

17458

2000

BAC

Mar08

45

Calls

$0.85

SELLER

ISE

2567

33.28%

0.345

19440

2000

BAC

May08

40

Puts

$2.35

BUYER

ISE

4673

44.35%

-0.31

36620

2000

BAC

May08

47.5

Calls

$1.35

BUYER

ISE

2269

33.58%

0.315

25001

1925

BAC

Mar08

45

Calls

$0.97

SELLER

ISE

5900

32.35%

0.385

19440

1.

Increases/decreases in: a) b)

2.

3.

4.

Trading volume/Open interest Implied volatility levels

Determine possible pins near expiration Effective for analyzing roll activity for covered calls Watch out for dividend plays

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

107

Backtesting Asset

C/P

Strike

Expiration

Contracts

Price

B/S

1/24/1996

SPX

Put

615

2/17/1996

-100

4.50

Sell

45,000.00

45,000.00

2/15/1996

SPX

Put

615

2/17/1996

100

0.06

Buy

-625.00

44,375.00

2/21/1996

SPX

Put

640

3/16/1996

-100

4.00

Sell

40,000.00

84,375.00

3/14/1996

SPX

Put

640

3/16/1996

100

0.62

Buy

-6,250.00

78,125.00

3/27/1996

SPX

Put

640

4/20/1996

-100

7.50

Sell

75,000.00

153,125.00

4/18/1996

SPX

Put

640

4/20/1996

100

0.38

Buy

-3,750.00

149,375.00

4/24/1996

SPX

Put

640

5/18/1996

-100

5.00

Sell

50,000.00

199,375.00

5/16/1996

SPX

Put

640

5/18/1996

100

0.06

Buy

-625.00

198,750.00

5/29/1996

SPX

Put

660

6/22/1996

-100

6.38

Sell

63,750.00

262,500.00

1.

2.

3.

4.

5.

Trade Net

P+L

Trade Date

Can provide extremely valuable insights Does the Past = the Future?

Small changes can make big differences Be aware of macro issues impacting results Be careful of data mining and timeframe used for analysis

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

108

Summary – Volatility Idea Generation 1.

2.

3.

4.

5.

Many sources of information for ideas Some data extremely valuable, other data requires some work and interpretation Understand what the data is telling you and its limitations Watch macro issues = micro opportunities Be careful of data mining and the timeframe There is always a better way to do things‌

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

109

8. Conclusion

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

110

Potpourri of Option Knowledge

Can be good without being complicated If it is too good to be true find out why Understand how your position changes as asset changes and time passes Volatility is extremely important Know the probability of success It is worth the effort to understand options, their use is rapidly expanding

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

111

In conclusion „ „

„

Diversification and risk management Options-based strategies and benchmark indexes have attracted more interest Please see the last slide for important risk disclosures

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

112

In conclusion „ „

„

Diversification and risk management Options-based strategies and benchmark indexes have attracted more interest Please see the last slide for important risk disclosures

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

113

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (the “ODD”). The ODD and supporting documentation for any claims, comparisons, recommendations, statistics or other technical data in these materials are available by calling 1-888OPTIONS, or contacting CBOE at www.cboe.com/Contact. The information in these materials is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Many of the matters discussed are subject to detailed rules, regulations, and statutory provisions which should be referred to for additional detail and are subject to changes that may not be reflected in these materials. No statement within this material should be construed as a recommendation to buy or sell a security or to provide investment advice. The CBOE S&P 500 BuyWrite Index (BXMSM), CBOE S&P 500 2% OTM BuyWrite Index (BXYSM), CBOE DJIA BuyWrite Index (BXDSM), CBOE Russell 2000 BuyWrite Index (BXRSM) and CBOE NASDAQ-100 BuyWrite Index (BXNSM) (the “Indexes”) are designed to represent proposed hypothetical buy-write strategies. Like many passive benchmarks, the Indexes do not take into account significant factors such as transaction costs and taxes. Transaction costs and taxes for a buy-write strategy could be significantly higher than transaction costs for a passive strategy of buying-and-holding stocks. Investors attempting to replicate the Indexes should discuss with their brokers possible timing and liquidity issues. Past performance does not guarantee future results. These materials contain comparisons, assertions, and conclusions regarding the performance of indexes based on backtesting, i.e., calculations of how the indexes might have performed in the past if they had existed. Backtested performance information is purely hypothetical and is provided in this document solely for informational purposes. The methodology of the Indexes is owned by Chicago Board Options Exchange, Incorporated (CBOE) may be covered by one or more patents or pending patent applications. Standard & Poor's®, S&P®, and S&P 500® are registered trademarks of The McGraw-Hill Companies, Inc. and are licensed for use by CBOE. "Dow Jones", "The Dow", "DJIA" and “Dow Jones Industrial Average” are trademarks of Dow Jones & Company, Inc. and have been licensed for use for certain purposes by CBOE. CBOE's options based on Dow Jones indexes and financial products based on the CBOE DJIA BuyWrite Index are not sponsored, endorsed, marketed or promoted by Dow Jones and Dow Jones makes no representations regarding the advisability of investing in such products. Nasdaq®, Nasdaq-100®, and Nasdaq-100 Index®, are trademarks of The Nasdaq Stock Market, Inc. (which with its affiliates is referred to as the "Corporations") and are licensed for use by CBOE. The CBOE NASDAQ-100 BuyWrite Index (the "BXN Index") is not derived, maintained, published, calculated or disseminated by the Corporations. CBOE Volatility Index®, VIX®, CBOE® and Chicago Board Options Exchange® are registered trademarks and BXM, BXD, BXN and BXY are servicemarks of CBOE. Copyright © 2008 Chicago Board Options Exchange, Incorporated. All Rights Reserved.

Summer 2008 Presentation to CFA Society in Asia. Please see the last slide for important risk disclosures.

This is meant to provide general information; it is not to provide investment advice.

114