Sunday, 22 March 2020

Systematic Put Write - March 2020


Last Friday was Option Expiration day and it is time to review the movements done following our strategy.

IBEX 35 on March 20th 2020. Source Investing

Total meltdown, panic on the markets due to the COVID-19 and its effects on the health and the economy. The IBEX 35 index closed at 6443 points, losing 3489 points (or a whooping -34,83%).

As I had sold a 9900 PUT for 136,35€, I have to book a loss of -3300,30€ (also a painful -32,24%).

Considering this, since its inception, the Put Write Strategy is at -28,6%During the same period, IBEX 35 lost -32,5%.

This strategy delivers what it promises: "Equity-like performance with less volatility", so when the underlying equity crashes, we crash too, although less hard.

To make matters worse, the CNMV (the Spanish market regulator) forbid short operations (spanish) on Indexes and derivatives and, although PUT selling is a bullish/neutral strategy, we will not be able to sell a PUT option for April.

Instead, I will have to buy next Monday the underlying future contract to keep the same exposure level during the month of April. For the tracking purposes, I will note the theoretical value of the PUT option, which would be been the biggest one in our history series due to the huge current volatility.