A new white paper finds SPXW Index that sells SPXW puts generated average annual gross premiums of 37%, with less volatility compared to stocks and bonds.

Do you still wonder if all put-selling strategies have tremendous left-tail drawdown risk? University of Illinois at Chicago Professor Oleg Bondarenko has an answer for you in his new white paper, “Historical Performance of Put-Writing Strategies,” which he presented at the 35th annual Cboe Risk Management Conference. See what he has to say below.



Bondarenko analyzed the 13-year performance of the Cboe S&P 500 PutWrite Index (PUT) and Cboe S&P 500 One-Week PutWrite Index (WPUT). He then compared the performance of those indexes to that of traditional benchmarks, such as the S&P 500, Russell 2000, MSCI World and 30-year Treasury Bond (FTSE).

Here’s what each of those do:

Name  Description
S&P 500 Index A benchmark of the overall U.S. stock market, comprised of 500 leading companies, and considered the best single gauge of large cap U.S. equities.
 Cboe S&P 500 PutWrite Index  Measures the performance of a hypothetical portfolio that sells SPX put options against collateralized cash reserves held in a money market account.
 Cboe S&P 500 One-Week PutWrite Index  Tracks the performance of a hypothetical strategy that sells an at-the-money SPX put option on a weekly basis. The written SPX put option has a maturity of one week to expiry and is collateralized by a money market account invested in one-month Treasury bills.
 Russell 2000  A small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index.
MSCI World Index   A broad global equity index that represents large and mid-cap equity performance across 23 developed markets.
 30-Year Treasury Bond Index  An index that seeks to measure the performance of the Treasury bond market

One of his key findings was that the WPUT index generated a much less severe drawdown and less volatility than the S&P 500 Index. How was this achieved?

WPUT Index Collects Premiums 52 Times a Year

Bondarenko conducted a 13-year analysis of the performance of the WPUT and PUT indexes, both of which sell S&P 500 options that are pretty close to at-the-money (ATM). But how can an ATM option-writing strategy perform well if it doesn’t participate in stock market upside performance during bull markets?  Both the WPUT and PUT indexes collect options premiums at regular intervals. Exhibit 21 demonstrates Bondarenko’s observation that “selling one-week ATM puts 52 times a year can produce even higher income” than selling 12 times a year. However, he adds that transaction costs may be higher with more frequent trading.

Chart 1

(The chart above shows that from 2006 to 2018, the average weekly WPUT premium is 0.71 percent.)


WPUT Index – Average Annual Gross Premiums of 37%

Exhibit 22 (below) shows that from 2006 to 2018, the average annual aggregate premium for PUT is 22.1% and for WPUT is 37.1%. The difference between the two is 15 percentage points annually.  Regarding the higher gross premiums for the WPUT Index, Bondarenko explains, “Intuitively, the premium of the ATM put increases as the square root of maturity. This means that a one-week tenor option rolled over four times per month will approximately generate 2x the premium of a one-month tenor option rolled over once per month (i.e., 1/2 premium times 4). Because ATM implied volatilities are typically in contango, the factor between one-month and one-week option premiums is less than two. … While the gross premiums collected are always positive, the cash-secured put-writing strategy does have downside risk and its net returns can be negative.”

Chart 2


Less Severe Drawdown for WPUT Index

Many investors would prefer to avoid long, severe drawdowns. As illustrated in Exhibit 18, from 2006 to 2018, the maximum drawdown for WPUT is -24.2%, compared to -32.7% for PUT and -50.9% for S&P 500. Over the same period, the longest drawdown for WPUT was much shorter than PUT and S&P 500. The longest drawdown for WPUT was 22 months while the longest drawdown for PUT and S&P 500 were 29 months and 52 months, respectively. Therefore, investors who prefer shorter, less severe drawdowns may opt for WPUT, which has been shown to provide greater consistency over time.

Chart 3



Lower Volatility and Lower Returns for WPUT Index

Over the 13-year analysis period, the WPUT Index had lower volatility and lower returns than the PUT Index, 30-year Treasury bond index and three stock indexes, as shown in the table below.

Chart 4


Key findings of Oleg’s 13-year analysis include:

  • Lower Beta and Volatility for WPUT Index.The WPUT Index had a beta of 0.54, and had a lower annualized standard deviation (9.48%) than the PUT (10.69%) and S&P 500 (14.32%).
  • Less Severe Maximum Drawdown for WPUT Index. The worst maximum drawdowns were down 24.2% (WPUT), down 32.7% (PUT), -and down 50.9% (S&P 500).
  • Higher Annual Gross Premiums for WPUT Index. The average annual gross premium collected was 22.1% for PUT and 37.1% for WPUT. 


Learn More

To read the full white paper, “Historical Performance of Put-Writing Strategies (2019),” visit www.cboe.com/Oleg.