Put options allow a buyer the right, but not the obligation, to sell a specific quantity of a security at a set strike price, or exercise price, on or before an agreed expiration date. The put option buyer would pay the seller a premium for this right to sell. The put write strategy would generate income through these premiums.
“Returns for PUTW will largely be driven by the premiums received from selling put options and also income earned on the collateral,” Siracusano added. “Given the recent volatility in the market, we believe PUTW can be used to potentially dampen equity volatility and serve as an alternative way to generate total return in the current low-yield environment.”
Traditionally, investors would benefit from the the put write strategy during sideways trending markets as people just pocket the premiums or income generated. Additionally, the strategy may outperform the S&P 500 when the market is declining, but it can underperform when the market is rising.
PUTW will be competing against put write ETF strategies already on the market, including the ALPS U.S, Equity High Volatility Put Write Fund (NYSEArca: HVPW) and ALPS Enhanced Put Write Strategy ETF (NYSEArca: PUTX).
Max Chen contributed to this article.