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?

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

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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