More On The Returns Of The CBOE S&P 500 PutWrite Index

Given the surprising interest in put-write strategies and the CBOE PutWrite Index (^PUT), I have spent some additional time with the PUT data to see what sort of secrets I might be able to uncover.

I must confess that the more I dig, the more I am intrigued by this index put-write approach. Since there has been considerable discussion about the differences in return between the PUT and the closely related CBOE BuyWrite Monthly Index (^BXM), I will start by showing a table that has a year-by-year comparison of the PUT and the BXM. Just for fun I threw in the average VIX (^VIX) for each year, the change in the average VIX from year to year, the VIX range for the year and a ratio of that range divided by the average VIX. While none of these additional data points provides a smoking gun, each offers up a piece of the overall performance puzzle.

The second graphic is a simple matrix of monthly returns for the PUT since 1986. Not surprisingly, the two worst monthly returns were during the volatility peaks in October 1987 and October 2008. In a related note, several of the most profitable months for the PUT came just after high volatility events.

[Source: CBOE, VIX and More]

For those looking to dig deeper into this issue, consider that put-write absolute and relative returns are largely a function of implied volatility, the trending characteristics of the S&P 500 (^GSPC) and interest rates. Note also that that upper chart only goes back to June 1^st, 1988 because that is when Standard & Poor’s began reporting daily dividends for the S&P 500 Total Return Index.

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