Hardly a day goes by that I don't read an article or hear some pundit extol the merits of selling puts (put-write). Selling puts seems to be of such interest that there are even ETFs, such as WisdomTree CBOE S&P 500 PutWrite Strategy ETF (PUTW), that offer an easy path for the inexperienced investor to complement their portfolio with put-write exposure.
Over the years I've written scores of articles with the goal of trying to help investors use options intelligently. My perspective has always been to lay the fundamental groundwork that investors need before they go "jumping in" to areas that are complex. I hope this article will add to the reader's knowledge base. If the reader knows more, they can make better choices.
Let me start off with a qualification. Many investors use options on a "one-off" or "hit-and-run" style. They are using options as a trading vehicle, not as an investing vehicle. I can't and won't address this type of option usage because I'm an investor not a trader. Instead, I will concentrate strictly on the investor that is looking to supplement their portfolio. These investors typically sell puts as a substitute for direct stock ownership; an adjunct to portfolio protection; a "wait and see" and similar objectives. They are not "in-and-out" but more permanent in nature.
This article will benchmark results of various strategies relative to the S&P 500 Index. Of course, one can't directly buy the S&P 500 Index (though they could buy the underlying stocks). So, this article will be of primary value to those that own or use an ETF that follows the S&P Index such as the SPDR S&P 500 ETF (SPY). Though one can't buy the index without using the ETF, they can utilize options on the Index, such as SPX. Personally, I use options
