CBOE launches PutWrite index

The Chicago Board Options Exchange (CBOE) has launched the CBOE S&P 500 PutWrite Index, a new benchmark index based on selling S&P 500 Index (SPX) put options in order to buy short-term US Treasury bills.

The Put Index follows the CBOE S&P 500 BuyWrite Index (BXM), a strategy that sells SPX call options, introduced in 2002. However, the exchange says that back-testing since 1988 shows the PutWrite Index brings higher returns: the Put Index had an annualised return of 12.6% compared with 12.1% for the S&P 500 Total Return Index, 11.8% for the BXM and 4.7% for three-month Treasury Bills.

The exchange added that the Put index was also less volatile: its standard deviation was 61% of the S&P 500’s, and was also smaller than that of the BXM. The Put index also grew faster than the Buy index: 861% between June 1988 and May 2007, compared with a 731% increase for the BXM over the same period.

Finally, while buy-write strategies often tend to perform relatively well in markets with negative or slowly rising returns, the PutWrite strategy performs well in a flat or downward trending market, and historically has had its best performance during periods of higher volatility.

The CBOE said the index is intended as a benchmark only, and that there are no plans to launch products based on it.

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