For example, something like the WisdomTree CBOE S&P 500 PutWrite Strategy Fund (NYSEArca: PUTW) and the WisdomTree CBOE Russell 2000 PutWrite Strategy Fund (Cboe: RPUT) can help investors generate income by selling volatility through writing options. PUTW includes one- and three-month Treasury bills and sells or “writes” one-month, at-the-money, S&P 500 Index puts. RPUT is a put write strategy on the Russell 2000 Index. Investors can use these strategies to help lower portfolio beta and reduce downside risk. The strategy can generate higher potential income if the VIX stays elevated, and the income generated can offset potential losses if equities pulled back, especially in a highly correlated and volatile market.
“Both strategies aim to provide a positive correlation to equities, but with significantly lower volatility,” Sinha said.
Additionally, investors can turn to long/short strategies, such as the WisdomTree Dynamic Long/Short U.S. Equity Fund (DYLS) and the WisdomTree Dynamic Bearish U.S. Equity Fund (DYB), which hedge and seek to provide market-neutral and bearish positioning, respectively, in markets where fundamentals are deteriorating. These alternative ETF strategies can help investors by diversifying exposure in declining markets or limit downside risk.
“These are long/short equity strategies, which seek to add value through security selection, as well as opportunistically hedging market risk, when fundamentals are mixed and volatility is increasing,” Sinha said.
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