Access the S&P 500 with Built-in Buffers

Earlier in 2018 S&P Dow Jones Indices, Cboe Global Marketssm, and Milliman Financial Risk Management LLC collaborated to build four new series of Target Outcome Indexes, designed to reflect defined exposures to the S&P 500 Index, where the downside protection levels, upside growth potential, enhancement level, and outcome period are all pre-determined.

Each Series consists of four quarterly issued indexes (January, April, July, and October—16 indexes total) that reset annually.

Buffer Protect Series


  • SPRF-01 (January), SPRF-04 (April), SPRF-07 (July), SPRF-10 (October)

Cboe S&P 500 30% (-5% TO -35%) BUFFER PROTECT INDEX SERIES

  • SPRF-01 (January), SPRF-04 (April), SPRF-07 (July), SPRF-10 (October)

Enhanced Series


  • SPEG-01 (January), SPEG-04 (April), SPEG-07 (July), SPEG-10 (October)


  • SPEB-01 (January), SPEB-04 (April), SPEB-07 (July), SPEB-10 (October)

Solving a Key Challenge: Providing Simple Access to Structured Outcomes

The approach taken by the Target Outcome Indexes is analogous to certain equity-linked strategies used in structured products and structured annuities—a space with nearly $1 trillion in combined assets in the U.S. alone. As large as the structured product space has become, it has historically been accessed by institutional and high net worth investors, and has been largely ignored by retail investors, the financial press, and product developers.

We surmise one key reason for this is that the structured product space has never truly addressed one of its biggest challenges regarding the investing public, which is to devise a simple and transparent approach that investors could easily access and follow.

In our view, solving this challenge through an index based approach can provide unprecedented access to structured outcomes for institutional investors and financial advisors, and establishes liquidity and transparency within an otherwise complex and opaque space.

Cboe Target Outcome Indexes were built to replicate features of the largest structured product category, which are tied to the return of an underlying equity asset, like the S&P 500 Index.

Creating Defined Exposures to the S&P 500

Each Cboe S&P 500 Target Outcome Index seeks to reflect defined exposure to the S&P 500 Price Index (S&P 500) through four parameters:

Defined Parameters of Target Outcome Indexes

  1. Equity Market Exposure: S&P 500 Index. Target Outcome Indexes reflect exposure to broad equity markets on which there are liquid underlying derivatives markets; in this case the S&P 500—a broad measure of U.S. large cap equities.
  2. Defined Downside Protection Levels: 0%, 10%, 15%, 30%. Target Outcome Indexes seek to incorporate defined levels of downside protection (e.g., 0%, 10%, 15%, and 30%) over each Index’s outcome period. For example, if at the end of the outcome period the S&P 500 is down 20%, it is expected that a target outcome strategy with a 15% protection level would be down 5%. Note: the Cboe S&P 500 30% (-5% to -35%) Buffer Protect Index seeks to provide a 30% buffer from -5% to -35%, exposing investors to the first 5% of losses relative to the S&P 500.
  3. Defined Upside Growth Potential: 1x, 2x, 3x to a cap. Cboe Target Outcome Indexes seek to incorporate upside growth relative to the S&P 500, to a cap. Each Index also exhibits an upside participation rate, which is an enhancement factor that represents the amount of upside exposure the index return is multiplied by, over the outcome period and subject to a cap. The upside growth is either 1x (no enhancement), 2x, or 3x. The enhancement factor is only applied to the upside growth of the Index. Downside exposure is on a one-to-one basis, over the outcome period (not accounting for any protection levels).
  4. Defined Outcome Period: One Year. Cboe Target Outcome Indexes seek to reflect target outcomes over a one-year outcome period, at which point each Index resets (i.e., “rolls”). Investors may be familiar with certain investment products that seek to deliver both upside and downside exposure (often leveraged) to an asset over a daily or weekly point-to-point period. The Cboe Target Outcome Indexes seek to incorporate upside enhancement and/downside protection levels on an annual point-to-point period.

The Index methodology sets the equity market exposure, downside protection level, upside enhancement level, and outcome period for the life of each Index. The upside cap is established at the beginning of each outcome period.

The posts on this blog are opinions, not advice. Please read our disclaimers.

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