Option Strategies and Market Signals: Do They Add Value to Equity Portfolios?

Sylvestre Blanc, Emmanuel Fragnière, Francesc Naya and Nils S. Tuchschmid ()
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Sylvestre Blanc: Grammont Finance, Derivatives and Portfolio Management, 1095 Lutry, Switzerland
Emmanuel Fragnière: HES-SO Valais-Wallis, Business School, ITO, 3960 Sierre, Switzerland
Francesc Naya: HES-SO School of Management Fribourg, 1700 Fribourg, Switzerland
Nils S. Tuchschmid: HES-SO School of Management Fribourg, 1700 Fribourg, Switzerland

FinTech, 2025, vol. 4, issue 2, 1-15

Abstract: This study explores an innovative approach to incorporating option strategies into equity portfolios. It presents an alternative direction that institutional investors could take to overcome their current challenges, in a context where traditionally diversified portfolios of only equity and fixed-income assets have shown weaknesses that make it difficult for these investors to achieve their performance goals within their risk limits. We test whether a set of well-known backward-looking signals from equities markets and less-researched forward-looking ones from options markets can be used to improve the efficiency of two option strategies, namely covered call and protective put. The trend signal appears to be the one that adds the most value to both strategies. This study also shows that increasing complexity through additional trading rules does not improve the results of the more basic option strategies that make use of the signals.

Keywords: options; derivatives; trading signals; portfolio optimization (search for similar items in EconPapers)
JEL-codes: C6 F3 G O3 (search for similar items in EconPapers)
Date: 2025
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