%0 Journal Article %A Wei-Han Liu %A Jow-Ran Chang %T Can the Improved CMBO Strategies Beat the CMBO Index? %D 2020 %R 10.3905/jod.2020.1.121 %J The Journal of Derivatives %P jod.2020.1.121 %X We aim to improve the CMBO strategy, a covered-call strategy based on the Chicago Board of Exchange Covered Combo (CMBO) Index. We modify the major issues that determine risk and return: aggregate market status and the degree of moneyness of options. The empirical analyses indicate that the four CMBO strategy portfolios we designed, with their respective degrees of moneyness of option, provide higher return than the S&P 500 Index in ordinary and bearish markets but not in a bullish market because of its short volatility. They evidentially confirm the role of the degree of moneyness of options. A higher degree for an out-of-the-money (OTM) option produces the following observations: (1) a lower probability of exercising both call and put in the portfolio and (2) a higher overall risk-adjusted performance. The Chicago Board of Exchange may consider issuing other types of CMBO indexes with higher-degree OTM options for purposes of hedging and investment. We especially recommend our 5% OTM CMBO portfolio, based on the high values of its Sharpe and Sortino ratios. Its outperformance sustains across different market conditions.TOPICS: Derivatives, options, portfolio constructionKey Findings• We aim to improve the CMBO strategy and modify the major issues that determine risk and return: aggregate market status and the degree of moneyness of options.• We confirm the role of the degree of moneyness of options. A higher degree for an out-of-the-money option produces a lower probability of exercising both call and put in the portfolio and a higher overall risk-adjusted performance.• We especially recommend our 5% out-of-the-money CMBO portfolio, based on the high values of its Sharpe and Sortino ratios. %U https://jod.pm-research.com/content/iijderiv/early/2020/11/12/jod.2020.1.121.full.pdf