Selling puts can be rewarding in stagnant stock market conditions as the trader would collect premiums, or yields, if the strike price remains below the current market price of a security. Traditionally, investors would benefit from the the put write strategy during sideways trending markets as people just pocket the premiums or income generated. The strategy may outperform when the market is declining, but it can underperform when the market is rising.
“RPUT provides investors with the opportunity to target the return of small-cap stocks ‘beta’ through a plain-vanilla options strategy,” Jeremy Schwartz, WisdomTree Director of Research, said in a note. “WisdomTree believes the premium income that RPUT receives from selling Russell 2000 Index put options can help in seeking to achieve the returns of small-cap stocks over time, while mitigating volatility associated with investing in the Russell 2000 Index alone. In addition, we’ve found that historically PUTR, the index RPUT tracks, exhibited lower risk levels than the Russell 2000.”
RPUT complements WisdomTree’s other put write ETF strategy, the WisdomTree CBOE S&P 500 PutWrite Strategy Fund (NYSEArca: PUTW). The WisdomTree PutWrite ETF tries to reflect the performance of the CBOE S&P 500 PutWrite Index, which implements a put write strategy on the S&P 500 Index.
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