Rebuffed: A Closer Look at Options-Based Strategies

AQR

Cliff Asness, Daniel Villalon

Research

5 Pages

AQR critically evaluates the performance of popular options-based investment strategies, such as buffered and defined outcome funds, over the period from 2020 to early 2025. They explain why they believe options-based strategies are a bad deal even though many claim they are a free lunch.

Key Takeaways

Underperformance is widespread: Over two-thirds of the analyzed funds delivered lower returns and higher risk than a simple mix of equities and cash.
Risk reduction is often superficial: Many funds achieve lower volatility by simply reducing equity exposure, not through effective hedging.
Simpler alternatives may be superior: Straightforward combinations of stocks and cash or Treasuries often outperform these complex strategies.
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