WisdomTree Investments has come out with its second put write ETF strategy to help investors better manage downside risk in the small-cap segment during an extended bull market environment.
On Thursday, WisdomTree launched the WisdomTree CBOE Russell 2000 PutWrite Strategy Fund (Cboe: RPUT), which has a 0.43% expense ratio.
The WisdomTree CBOE Russell 2000 PutWrite Strategy Fund tries to reflect the performance of the of the CBOE Russell 2000 PutWrite Index, which tracks the value of a cash-secured put option sales strategy, consisting of selling or “writing” Russell 2000 Index put options and investing the sale proceeds in one-month Treasury bills, according to a prospectus sheet.
“Put writing has been used by professional investors for decades as a solution to increase the yield and lower the volatility of equity returns over various market cycles,” Russell Rhoads, Director, Product Advancement, Global Derivatives at Cboe Global Markets, said in a note.
Specifically, 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.