As reported by Pension&Investments Magazine, a newly-published research report from the University of Massachussetts has found options-based collar strategies would have outperformed the market in most asset classes, while providing drastically reduced risk leading up to the 2008 financial crisis, AND as well, throughout the subsequent recovery.

“The contagion across asset classes during the financial crisis suggests that protective options-based investment strategies, such as collars, when implemented on a wide range of asset classes, could provide portfolios with greater downside risk protection than standard multi-asset diversification programs,” according to a summary release of the report issued by the Options Industry Council, which helped sponsor the research by Edward Szado and Thomas Schneewies. Mr. Szado is a research analyst and Mr. Schneewies a professor of finance, Isenberg School of Management, University of Massachusetts.

The research covers the 55 months from June 2007 to Dec. 31, 2011, and expands on a 2010 paper that studied the effects of a collar strategy against the PowerShares QQQ ETF from 1999 to 2010.

The authors evaluated the impact of collar strategies against ETFs across a wide range of asset classes such as equities, commodity, fixed income, currency and real estate, based on a set of rules where a six-month put option is purchased and consecutive one-month calls are written. While Australian dollar and Japanese yen currency ETFs, two bond ETFs and Nasdaq and gold ETFs outperformed the collars, the strategy outperformed other ETFs across asset classes while providing significant risk protection. Continue reading →