This year we received new questions regarding the performance and downside risk of cash-secured put-writing strategies, and WisdomTree launched an ETF designed to track the Cboe Russell 2000 PutWrite Index (PUTR). In particular, questions have been raised as to what types of returns and drawdowns have been experienced by cash-secured putwrites over the past decade and in February 2018.

HIGHER RETURNS SINCE 2001 AND IN FEBRUARY 2018

The line chart below shows that the PUTR had higher returns than four other indexes since January 2001.
PUTR1

The table above shows that the PUTR Index had higher returns than both the Russell 2000 Index and BXR Index in the down periods of both 2008 and February 2018.

BETTER RISK-ADJUSTED RETRUNS FOR PUTR INDEX

In the table below featuring six indexes, the PUTR had the best performance for all four metrics shown – highest returns, lowest standard deviation, and best risk-adjusted returns according to both the Sharpe Ratio and the Sortino Ratio. A key factor that facilitated the strong risk-adjusted returns was the volatility risk premium, the fact that the PUTR Index sold Russell 2000 index options that were richly priced in that the implied volatility usually exceeded the subsequent realized volatility. One caveat about using the Sharpe Ratio is the fact that the ratio assumes a normal distribution of returns, and the skewness was negative 1.91 for the PUTR Index and negative 0.51 for the Russell 2000 Index. 
PUTR2

Other indexes in the table above include –

  • Cboe Russell 2000 BuyWrite Index (BXR)
  • Cboe Russell 2000 Conditional BuyWrite Index (BXRC)
  • Cboe Russell 2000 30-Delta BuyWrite Index (BXRD)
  • Cboe Russell 2000 Zero-Cost Put Spread Collar Index (CLLR)

LESS SEVERE DRAWDOWNS FOR PUTR INDEX

The next table below shows that the PUTR had less severe maximum drawdowns in terms of both the % amount of drawdown (down 38.1%) and the maximum drawdown length (only six months).
PUTR3

MORE INFORMATION

For more information about the PUTR Index and portfolio management, please visit –