PPUTEA Index
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Cboe MSCI EAFE 5% Put Protection Index
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Cboe® MSCI EAFE 5% Put Protection Index (PPUTEA℠)
The Cboe® MSCI EAFE 5% Put Protection Index (PPUTEA℠ Index) is designed to track the performance of a hypothetical passive investment strategy that consists of a long position indexed to the MXEA Index and a rolling long position in monthly 5% Out-of-the-Money (OTM) MXEA Put options.
Resources
Protective Put Strategy
Goal
A goal for the purchase of cash-settled stock index protective put options often is to hedge a price drop in the stock index.
Strategy
A stock index protective put position can be created by (1) owning or buying a portfolio of stocks, and (2) buying corresponding stock index put options to hedge some of the downside risk of the stock portfolio.
Comments
The stock index protective put is designed to limit downside risk and establish a floor price, with the upside being potentially unlimited, after factoring in the premium and commission costs. To mitigate the net upfront costs for options premiums, the features of the protective put could be compared with the collar strategy.