More on PUT Returns

Given the surprising interest in put-write strategies and the CBOE PutWrite Index (PUT), I have spent some additional time with the PUT data to see what sort of secrets I might be able to uncover.

I must confess that the more I dig, the more I am intrigued by this index put-write approach. Since there has been considerable discussion about the differences in return between the PUT and the closely related CBOE BuyWrite (BXM) Index, I will start by showing a table that has a year-by-year comparison of the PUT and the BXM. Just for fun I threw in the average VIX for each year, the change in the average VIX from year to year, the VIX range for the year and a ratio of that range divided by the average VIX. While none of these additional data points provides a smoking gun, each offers up a piece of the overall performance puzzle.

The second graphic is a simple matrix of monthly returns for the PUT since 1986. Not surprisingly, the two worst monthly returns were during the volatility peaks in October 1987 and October 2008. In a related note, several of the most profitable months for the PUT came just after high volatility events (click on chart to enlarge).

[Source: CBOE, VIX and More]

For those looking to dig deeper into this issue, consider that put-write absolute and relative returns are largely a function of implied volatility, the trending characteristics of the SPX and interest rates. Note also that that upper chart only goes back to June 1^st, 1988 because that is when Standard & Poor’s began reporting daily dividends for the S&P 500 Total Return Index.

Comments

[SeekingTruth:]

Excellent work , Bill, this is valuable information. Thanks!

Jan 13 12:18 PM

[granger:]

Good stuff as always.

I have a thought and would need help. (actually can you generate, as I do not know how)

Take the PUT and BXM and optimize the allocation. For example 75% to PUT and 25% to BXM as a long term portfolio. (whatever the optimal mix would be)

Then compare this PUT-BXM portfolio, to the S&P 500 for a long time frame. Analyzing return, Standard Deviation, Alpha, etc.

Any help would be appreciated.

Jan 17 05:11 AM

[granger:]

What is the best vehicle for accessing PUT writes?

Jan 17 05:14 AM