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Put option writing on equity indices (like the S&P 500) can be a strategy to pick up some small premiums in a rising market while buying some slightly discounted positions in the index during falling markets (since you'll need to buy the stock if it falls, but your position will be discounted by the option premium you sold).

The strategy is outlined here: https://www.nb.com/pages/public/en-cn/insights/index-put-writing-taking-the-edge-off-equity-risk.aspx

I'm wondering if there are any mutual funds available to the public that execute this strategy, such as one that tracks the "CBOE S&P500 PutWrite Index" mentioned in the link. I'd like to allocate some money to this strategy but would prefer not to have to deal with all the individual option trades required.

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  • Try a search for "CBOE S&P500 PutWrite Index ETF" – D Stanley Jan 7 at 22:09
  • Thanks @DStanley, I had been looking for mutual funds and struggling to find any. Switching to ETF searching, I found PUTW - an ETF that tries to track the index. – jaypops96 Jan 7 at 22:59
  • Questions seeking recommendation of specific products/services are off-topic. Sorry. – Chris W. Rea Jan 8 at 0:29
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    If the question is "do any exist, and if not, why not?" then it's not asking for a recommendation. Voting to leave open. – Rupert Morrish Jan 8 at 19:40
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    Asking for names of funds or ETFs that execute a certain strategy isn't asking for a recommendation and is no more than asking what the names of utility stocks are. – Bob Baerker Jan 11 at 21:00
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A naked put is synthetically equivalent to a covered call, where both are opening transactions with the same strike and same expiration. They will have a similar risk graph and about the same performance regardless of what the stock price does. Therefore, you can use a "put writing ETF" or a "covered call writing ETF" and you can find them by googling the phrase with the quotations.

For informational purposes, the CBOE has a dozen or so option writing indexes. Two of the more popular ones are:

  • The CBOE's BXM index represents the returns of a monthly buy-write strategy where the S&P 500 is bought and one at-the-money call is written. Over the past 30 years, the S&P 500 has returned an annual rate of 9.9% with a standard deviation of 15.3%. The BXM has returned 8.9% with a standard deviation of 10.9%. Tthis would be equivalent to writing the ATM put.

  • The CBOE's BXMD index represents the returns of a monthly buy-write strategy where the S&P 500 is bought and one call 30% out-of-the-money is written. Over the 30 past years, the S&P 500 has returned an annual rate of 9.9% with a standard deviation of 15.3%. The BXMD has returned 10.7% with a standard deviation of 13.2%. This would be equivalent to writing the 30% ITM put (where the 30% is based on the underlying's price).

Here are some others with some stats:

https://www.borntosell.com/covered-call-blog/buywrite-index

I'm not a fan of this concept because covered calls (and naked puts) have an asymmetric R/R ratio. You bear all of the downside risk while having only a modest amount of upside potential (the premium). Imagine what the performance would be in 2000 or 2008 bears when the market lost over 50%. Not pretty. I'd sooner chase a smaller premium and write vertical spreads and a more balanced R/R spectrum along with a defined floor of loss. Tail risk is a bitch.

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  • That's very interesting, I'm still learning about the strategy of option use. Basically I'm trying to figure out -- if I'm willing to take a long-term, long position in a stock for 5-10 years, but don't care whether I buy today, tomorrow, next month, etc., how can I profit from my flexibility and tolerance to buy and hold. I thought maybe one way was to write naked puts and if the stock drops I just buy and hold the stock, and at least I got to pocket the premium. But your post makes me suspect that's not optimal. – jaypops96 Jan 8 at 1:24
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    No, it's not optimal though acceptable if into acquisition for buy & hold (get stock or collect income premium). Willingness to own a specific stock at a lower price is a bit different than continuously doing the put/write strategy monthly on the S&P 500. Some other things you should look at (google for info) are the verticals I mentioned, the Stock Replacement Strategy and the Poor Man's Covered call. The best thing that you could do is to pick up a copy of "Options as a Strategic Investment" by McMillan and avoid the options until you clearly grasp the strategies discussed in the book. – Bob Baerker Jan 8 at 3:13

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