PUT Index Tops 1500 and Hits All-time Daily Closing High – By Matt Moran

On Friday, May 8, the CBOE S&P 500 PutWrite Index (PUTSM) closed at 1501.08, its highest all-time daily close and the first time the index closed above 1500. PUT is an award-winning benchmark index that measures the performance of a hypothetical portfolio that sells S&P 500® Index (SPX) put options against collateralized cash reserves held in a money market account.

PUT-May 8The daily historical data for the PUT Index extends back to June 30, 1986. Since mid-1986 the PUT Index has had higher returns and lower volatility than the S&P 500 Index, the 30-Year Treasury Bond Index (Citi), and the S&P GSCI Index (that measures commodity performance).

PUT-SPTR line chart

Retu & SD PUT

In viewing the charts above, an astute investor might ask – if the markets are efficiently priced over the long term, how can one index have the highest returns and lowest volatility in a group of indexes?

RICHLY PRICED INDEX OPTIONS – REWARD SELLERS OF INDEX OPTIONS
There is evidence that suggests that, in most years since 1990, the markets for S&P 500 (SPX) options generally usually have been richly priced, and that consistent sellers of one-month SPX options have had the potential to achieve relatively strong risk-adjusted returns. Please see the chart below and the research papers at www.cboe.com/benchmarks for more information on the topic of richly priced index options.

Implied minus realized

EXPLORING THE PUT INDEX AND CASH-SECURED PUT WRITING
For the many investors today who are concerned about low interest rates for fixed income instruments, and high p/e ratios for stock indexes, it could make sense to explore the pros and cons of the PUT Index and the cash-secured put writing strategy. Later this year there may be a launch of an ETF that is designed to track the PUT Index. To learn more about the PUT Index, please visit www.cboe.com/PUT.

The posts on this blog are opinions, not advice.
Please read our disclaimer for Indices.

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