Abstract
Oyster describes the Volatility Risk Premium (VRP) as perhaps the most significant, untapped resource available to investors today. Systematic put selling or writing strategies offer investors a means to monetize that resource at low cost and historical data makes a strong case for relative outperformance compared with US equity benchmarks. Oyster analyzes the past performance of the Cboe S&P 500 PutWrite Index (PUT) recognizing that PUT underperformance versus the S&P 500 Index occurred during especially bullish stock market periods and that PUT outperformed when the S&P 500 posted below-average returns. Oyster also describes put-call parity and offers an explanation of why the PUT has outperformed the Cboe S&P 500 BuyWrite Index (BXM) when the two have identical payoff profiles.
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Notes
- 1.
Shalen, Catherine, “The BXM and PUT Conundrum,” Cboe Paper. 2014.
- 2.
Israelov, Roni, “PutWrite versus BuyWrite: Yes, Put-Call Parity Holds Here Too,” AQR Capital Management, LLC. March, 2017.
- 3.
Israelov, Roni and Tummala, Harsha, “An Alternative Option to Portfolio Rebalancing,” (October 30, 2017). Available at SSRN: https://ssrn.com/abstract=3061975 or https://doi.org/10.2139/ssrn.3061975.
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Oyster, M.J. (2018). Put Selling. In: Success in a Low-Return World. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-99855-8_17
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DOI: https://doi.org/10.1007/978-3-319-99855-8_17
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Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-319-99854-1
Online ISBN: 978-3-319-99855-8
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