Cboe® MSCI EAFE 20-Delta PutWrite Index (PDEA^SM)

The Cboe® MSCI® EAFE 20-Delta PutWrite Index (PDEA^SM Index) is designed to track the performance of a hypothetical passive investment strategy that collects option premiums from writing an Out-of-the-Money (OTM) MXEA® Put option on a monthly basis and holds a rolling money market account invested in one-month T-bills to cover the liability from the short MXEA Put option position, generally on the third Friday each month. The distinctive feature of this index is, when writing the OTM MXEA Put option, the option with a delta closest to 0.20 is selected.

Resources

• Cboe MSCI PutWrite Indices Methodology
• PDEA Historical Price Data

Cash-Secured PutWrite Strategy

Goals

Goals of cash-secured index putwrite strategies may include: (1) improve income from a cash or cash equivalent holding, and (2) receive upfront premium income in exchange for potential drawdown.

Strategy

To implement an index cash-secured putwrite strategy: (1) sell index put options, and (2) hold cash or cash equivalents (e.g., Treasury bills) to fully collateralize the short options position, in an amount equal to the maximum possible loss of the short put position.

Comments

The strategy (1) is often used to boost income from a holding of Treasury bills, (2) usually has a lower risk than a related stock index, (3) tends to outperform a related stock index when the stock markets are in range-bound or bearish regimes, (e.g., in 2008 and 2022), and underperform in bull market regimes (from 2012 to 2014, and in 2019).