Cboe S&P 500 One-Week PutWrite Index (WPUT)

The Cboe S&P 500 One-Week PutWrite Index^SM (WPUT) is a variation of the PUT index. Like the PUT, WPUT sells and collaterizes an at-the-money put option on S&P 500 stock index (SPX put). This structure mimics a buywrite payoff and yields a buffered exposure to S&P 500^® returns.   While the PUT sells  SPX puts monthly, WPUT sells an SPX put weekly.   Another difference is that the Treasury bills are one-month bills only instead of one and three-month bills. The WPUT  portfolio is rebalanced weekly, typically on Fridays after  the expiration of  SPX options that expire weekly (SPX weekly options). SPX weekly options expire at the close, except on the third Friday of the month, when they expire at 11 am ET. A new weekly SPX put is then sold. 

Resources

• Cboe PutWrite Indices Methodology
• WPUT 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).