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Cboe 20+ Year Treasury Bond PutWrite Index
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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).