WisdomTree Launches Cboe S&P 500 PutWrite UCITS ETF (PUTW)
Thursday 24th May '18
PUTW offers a complement to equity exposure to improve risk-adjusted returns
London 24th May 2018: WisdomTree, the exchange traded fund ("ETF") and exchange traded product ("ETP") sponsor, today announced the launch of the WisdomTree Cboe S&P 500 PutWrite UCITS ETF (PUTW), on the London Stock Exchange/Borsa Italiana/Deutsche Börse Xetra. PUTW offers investors the potential for mitigating volatility and delivering higher risk-adjusted returns compared to the S&P 500®.
The S&P 500 (SPX) is one of the most widely followed indexes for US stock market exposure and when volatility rises, many investors search for ways to reduce their risk while maintaining—or enhancing—their returns.
Rafi Aviav, WisdomTree Head of Product Development in Europe, said, “As investors search for investment opportunities that lie outside traditional asset classes and beyond common risk factors, PUTW offers a unique source of return by delivering an institutional options strategy in a widely accessible UCITS ETF wrapper.”
“PUTW employs an options strategy which includes, on a monthly basis, selling (or “writing”) at-the-money S&P 500 put options and investing the proceeds from that sale in US treasury bills. For assuming the risk of market losses through the put positions, the ETF earns a ‘volatility risk premium’ which can diversify investors’ sources of return and reduce the volatility of equity returns in portfolios,” he said.
WisdomTree has worked with Cboe Global Markets, Inc. (“Cboe”), a global leader in options investing, on PUTW and the ETF aims to track the Cboe S&P 500 PutWrite (“PUT”) index, which has a live track record dating back to 2007.
PUT Index: Historically Provides a Measure of Downside Protection
Christopher Gannatti, WisdomTree Head of Research in Europe said, “With the S&P 500 at or near record highs and investors having enjoyed a strong run of performance, we believe that it could be time to position for greater future volatility and downside risk. This strategy is designed with that in mind, as the option premiums collected cushion downside risk and those premiums also typically rise during bouts of market volatility.”
“Of course, if markets continue to grind higher, there is also an inherent correlation to the S&P 500, and the strategy was able to deliver a double digit return in 2017, a year marked by the absence of volatility in U.S. equities,” he added.
Historically PUT, the index PUTW tracks, had lower risk, a higher Sharpe ratio (a measure of risk-adjusted returns) and a lower beta compared to the S&P 500. PUT consistently displayed a much smaller drawdown during market downturns; providing 98% of the return of the S&P 500, but only 66% of the volatility from June 30, 1986 through year-end 20171.
Since June 1986, the PUT Index outperformed 96% of the time when the S&P 500 experienced a daily negative return and 92% of the time during a negative monthly return2.
PUTW: Under the Hood
- Exposure: Invests in one- and three-month Treasury bills, and sells or “writes” S&P 500 put options
- Rebalancing: Portfolio is rebalanced on a monthly basis when the Fund rolls the monthly options
- Options: European-style 1-month S&P 500 options, written “at the money” at the time of monthly roll
- Fully collateralised: No leverage is employed, and the number of SPX options sold varies month to month and is chosen to ensure full collateralisation, in which the total value of the treasury bill investments must equal the maximum possible loss from final settlement of the puts
|WisdomTree Cboe S&P 500 PutWrite UCITS ETF – USD Acc||PUTW||IE00BD49R243||LSE||USD|
|WisdomTree Cboe S&P 500 PutWrite UCITS ETF – USD Acc
S&P 500 Index (SPX): Market capitalization-weighted benchmark of 500 stocks selected by S&P Dow Jones Indices’ US Index Committee, designed to represent the performance of the large-cap segment of the U.S. equity market.
Cboe S&P 500 PutWrite Index (PUT): index that measures the performance of a hypothetical portfolio that sells S&P 500 Index (SPX) put options against collateralized cash reserves held in a money market account. The PUT
strategy is designed to sell a sequence of one-month, at-the-money, S&P 500 Index puts and invest cash at one- and three-month Treasury bill rates. The number of puts sold varies from month to month, but is limited so that the amount held in Treasury bills can finance the maximum possible loss from final settlement of the SPX puts.
Collateral: something pledged as security for repayment in the event of a loss.
Option Premium: the current price of any specific option contract that has yet to expire.
Put Options: an option to sell assets at an agreed price on or before a particular date.
Leverage: total assets divided by equity. Higher numbers indicate greater borrowing to finance asset purchases; leverage can tend to make positive performance more positive and negative performance more negative.
Gross Premium: see Option Premium.
“At the money”: option's strike price is identical to the price of the underlying security.
European-style: an option that can only be exercised on its expiration date.
1 WisdomTree, Cboe. 30/06/86-31/12/17. Past performance is not indicative of future results.
2 WisdomTree, Cboe. 30/06/86-31/12/17. Past performance is not indicative of future results.
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