Systematic Put Write - April 2020

Summary

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

IBEX 35 on April 17th 2020. Source Investing

After last month´s crash, the IBEX 35 bounced back, although not as much as the markets in the USA, for instance. The index closed at 6875 points, gaining 335 points (or +6,70%).

As I commented last month, the opening of new short positions was forbidden (and it keeps that way) by the CNMV (Spanish market regulator) so I could not perform the usual PUT selling. Instead, in order to keep the same exposure level, I bought a contract of the IBEX 35 future (which is the underlying asset of the PUT option) at 6110 points and sold it last Friday at 6940 points, booking a gain of 822,8€.

However, I don´t think that is fair to record this gain, since the strategy only involves selling ATM PUT options. Instead, I will record the theoretical gains that I would have obtained by selling the corresponding April 2020 6400 PUT: +437,50€ (or +6,42%).

Considering all this, since its inception, the strategy is at -24%. During the same period, the IBEX 35 lost -27,9%.

Systematic Put Write - March 2020

Summary

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.

Systematic Put Write - February 2020

Summary

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

IBEX 35 Index on February 21st 2020. Source Investing

Very strong gains during the first four weeks of the monthly cycle that faded a bit during the last two-three trading sessions. Very good scenario for our strategy since we keep all the premium obtained selling the February PUT option and we get better volatility for March.

IBEX closed at 9886 points, gaining 206 points or 2,1%. As I had sold a February 9600 PUT, for 136,35€, I keep all premium and book a gain of 1,36%.

Considering this, since its inception, the Put Write Strategy is at +6.0%. During the same period, IBEX 35 gained +3,6%.

Systematic Put Write - January 2020

Summary

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

IBEX 35 on January 17th 2020. Source Investing

Sideways month for the IBEX 35 index, which ended pretty much where it started. The index gained 5 points this month (or around 0,05%).

As I had sold a January 9600 PUT, for 103,35€, I keep all premium and book a gain of 1,07%.

Considering this, since its inception, the Put Write Strategy is at +4,6%. During the same period, IBEX 35 gained +1.5%.

Systematic Put Write - December 2019

Summary

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

IBEX 35 on December 21st 2019. Source Investing

Nice gains this month in the IBEX 35 index, which increases its value in 414 points (or + 4,47%). This is the first time since August 2018 that the index closes over 9500 points.

For December I had sold a 9300 PUT, for 161,35€. Since the underlying closed above this level, I get to keep all the premium, which represent and increase of +1.66%.

Considering this, since its inception, the Put Write Strategy is at +3.5%. During the same period, IBEX 35 gained +1.4%.

Systematic Put Write - November 2019

Summary

Today is November Option Expiration day and it is time to review the movements done following our strategy.

IBEX 35 on November 15th 2019. Source Investing

Sideways month for the IBEX 35 which ends with a little decline of 68 points (or -0,71%).

For November I had sold a 9300 PUT, for 136,35€. After buying it back, a profit of  97,35€ remains (or + 1.01%).

Considering this, since its inception, the Put Write Strategy is at +1.8%.

Systematic Put Write - August 2019

Summary

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

IBEX 35 on August 16th 2019. Source Investing

After a sizable drop, the IBEX 35 index closed at 8635 points, losing 535 points (or -5,83%).

For this month I had sold a 9200 PUT, so the final result after re-buying the sold option is a loss of 390,65€ (or -4,34%).

Considering this, since its inception one year ago, the Put Write Strategy is at -2,7%.

Ugly end for my first year following this strategy. However, I am quite satisfied with it and plan to continue it for another year, profiting from higher volatility levels caused by these drops (second biggest premium has been received for the September Put option). If we keep these levels by the end of the month,  we will be close to break-even while the IBEX stands close to losing 10% from the initial levels.

Let´s take a look to the last month movement and then review the most important parameters of the strategy after this first year.

Systematic Put Write - April 2019

Summary

Last Thursday was April Option Expiration day (last Friday was bank holiday in Spain) and it is time to review the movements done following our strategy.

IBEX 35 on April 19th 2019. Source Investing

Another month in positive for the IBEX 35 index, gaining 251 points this month (or + 2,69%).

As the future closed at 9581 points, value that is above the strike price of the sold option (which was 9300), I get to keep all the credit initially received (+ 167,35 €).

Considering this, since its inception, the Put Write Strategy is at +1,2%.

Systematic Put Write - March 2019

Summary

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

Ibex 35 on March 15th. Source Investing

After a very quiet month, today´s gains make the March future close at 9330 points, gaining 200 points this month (or + 2,19%).

As this value is above the strike price of the sold option (which was 9100) I get to keep all the credit initially received (+ 123,35 €).

Considering this, since its inception, the Put Write Strategy is at -0,6%.

Systematic Put Write - January 2019

Summary

Today is January Option Expiration day and it is time to review the movements done following our strategy.

IBEX 35 on January 18th 2019. Source Investing

Strong gains this month in the IBEX 35 January Future which closed at 9078 points, that is 526 points more (or + 6,18%) than the previous month.

As this value is above the strike price of the sold option (which was 8600) I get to keep all the credit initially received (+ 226,35 €).

Considering this, since its inception, the Put Write Strategy is at -3,1%.

Systematic Put Write - December 2018

Summary

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

IBEX 35 on Dec 21st 2018. Source Investing

Sharp decline in the IBEX 35 December Future which closed at 8550 points, that is 506 points less (or -5,58%) than the previous month. This drop overwhelms the credit received for the short 9100 Put Option and results in a loss of 366,85€ this month.

Considering this, the Put Write Strategy is now at -5,8%.

Systematic Put Write - October 2018

Summary

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

Ibex 35 on October 19th 2018 Source Investing

IBEX 35 October Future closed at 8904 points, that is 587 points less (or -6,1%) than the previous month. This drop overwhelms the credit received for selling the 9500 October Put Option plus the credit received before and leaves the strategy at -3,8%.

Systematic Put Write - September 2018

Summary

This is the first follow-up entry for a new position that I have opened last month. Unlike the credit spreads (vertical call/put spreads, calendars, etc.) this is a long term position: I will perform a systematic Put Writing on the Spanish Ibex 35 index.

What is a Systematic Put Write? 

This strategy is very simple, it consists of two operations every month:

• Sell one (or any amount) of Put Options with Strike almost at the money for the next month.
• Invest the nominal (value of the underlying of the options sold) plus the premium received in a risk-free fixed rate product.

Note: We will omit the second step, tough, as fixed rates are negative now in Europe.

What are the characteristics of this strategy?

• Sold options are cash-covered (you have the cash to buy the underlying).
• No adjustments are done.
• When the underlying falls, the strategy losses money but less than the underlying.
• When the underlying goes sideways and slightly upwards, the strategy gains money and beats the underlying.
• When the underlying rises sharply, the strategy gains money but greatly under-performs the underlying.

Put Write returns compared to SP500 and others from 1986 to 2008. Source Bloomberg and CBOE

All these characteristics make the strategy less volatile than the market itself and has given better results over a long period of time. Take a look to the Ennis Kupp + Associates study from 2009 (published in CBOE) for deeper insights.