BuyWrite, PutWrite: A Smoother Ride

Jan. 7.09 | About: PowerShares S&P (PBP)

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I am a big fan of the buy write index and put write index, and have been for a while. I own some shares of the PowerShares S&P 500 Buy Write ETF (NYSEARCA:PBP) and I use it for some clients where for whatever reason 40 stocks is not the best answer.

Over the years I have done many posts about buy write and put write indexes and products. The idea behind both is a smoother ride to a better long-term result with the expectation it will lag when the regular S&P 500 goes up a lot. Every back test I have ever looked at shows that, and as I have been following them I have to say I am convinced they deliver as advertised. The chart is for one year and shows both PBP and ^PUT down by quite a bit less than the S&P 500.

PBP has been around a little over a year. It has started slowly but the average volume is now 67,000 shares --not great but not impossible either. For now there is no ETP to track PUT but I hope there will be. In my opinion these indexes offer an easy way to manage volatility with a strategy that might be easier to understand. In the context of building a diversified portfolio that is simple in an increasingly complex world, I think there is plenty of meat on this bone.

The immediate motivation for this post was an email I received with this link to a recent study on the put write index.

A couple of these types of things carefully selected, along with a couple of absolute return products and a couple of hot potato themes, might make for an effective portfolio mix.