Why Sell Puts? Understanding the CBOE PutWrite Index (PUT) Strategy
Why Sell Puts? Understanding the CBOE PutWrite Index (PUT) Strategy
Why Sell Puts?
The CBOE maintains an index called the S&P 500 PutWrite Index (PUT Index), which tracks the performance of a portfolio that systematically sells S&P 500 put options against cash reserves held in Treasuries.
The PUT Index itself isn’t an ETF you can buy, but the strategy is straightforward to implement in your own account. Rather than buying stock directly, many investors sell puts as a way to express a bullish market view while aiming for smoother, more consistent month-to-month returns. This distinction shows up clearly in the historical results below.
Notice that the moves in the PUT Index are generally smaller than in the S&P 500. Selling puts isn’t about consistently outperforming the market, it’s about reshaping the risk profile of equity exposure. Most investors use short puts as a way to stay bullish while reducing overall portfolio volatility. That trade-off is clear in the numbers: the standard deviation of monthly returns is almost cut in half (±2.4% for PUT vs. ±4.3% for SPX). In other words, selling puts smooths out the ride. You may give up part of the strongest upside rallies, but you also experience smaller drawdowns. The result is a more balanced, risk-efficient way to maintain stock market exposure. tastytrade also has a kick-butt options backtester built right within the platform. Check it out. Reach out if you have questions.
Gold and Silver
We discussed last week how the gold miners (GDXJ and GDX) have outperformed gold and silver by a wide margin - almost double.
Why does this occur? It has to do with "operational leverage" and margins. With gold prices around $3,800/oz and production costs averaging $1,080 to $1,220/oz, small gold price increases translate into large profit gains for miners because their costs are mostly fixed. This leads to larger percentage gains in miners' earnings and therefore in the ETFs representing those miners, explaining their outperformance relative to the metal prices themselves.
Here is the math:
At $3,800/oz gold with $1,200/oz costs → profit = $2,600/oz
If gold rises just
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But this also goes in reverse. Small declines will have large impacts in the margins. If you think gold is a bit frothy - stay away from GDXJ/GDX or get short.
Two Trade Ideas
UBER ($97.14) Short Strangle (NOV) $3.67 Credit
Uber has been at the higher IVR on the board for a couple of weeks now at 32. They will report earnings at the end of October. If you think the stock might chop around in this 90-100 range prior to earnings, an 85/110 strangle plays into that short realized volatility for just under $1000 in buying power.
CCJ ($83.25) Call Ratio Spread 1x/3x (NOV) $2.40 Credit
Uranium stocks have been all the rage recently, with tons of upside volatility skew. Call ratio spreads play into this skew, adding an additional short call as a 1x/3x to add some additional short delta. The trade plays into an upside grind, but with no risk to the downside, and uses just under $2000 in buying power.
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