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WisdomTree launches the WisdomTree Cboe S&P 500 PutWrite UCITS ETF (PUTW), on the London Stock Exchange....

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Christopher Gannatti, WisdomTree Head of Research in Europe


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

Product Information

Fund

Ticker

ISIN

Exchange

Trading currency

WisdomTree Cboe S&P 500 PutWrite UCITS ETF – USD Acc

PUTW

IE00BD49R243

LSE

USD

WisdomTree Cboe S&P 500 PutWrite UCITS ETF – USD Acc

PUTS

IE00BD49R243

LSE

GBx

 

Source: ETFWorld

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