WisdomTree has launched the WisdomTree Cboe S&P 500 PutWrite UCITS ETF (PUTW), on the London Stock Exchange, offering 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, says: “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 (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.
Christopher Gannatti, WisdomTree Head of Research in Europe, says: “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 US equities,” he adds.