Market Measures

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The Power of the Put

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

What is the benefit of trading a short ATM put compared to long stock?

Study:
  • SPY, 2005-2017

  • Sold 1 ATM (50 Delta) Naked Put, 45 DTE, managed at 50%

  • Bought 100 shares of stock, adjsted for dividends, held to 2017

  • Compared cumulative performance, total ROC

We find that the performance of long stock is nearly identical to the short put over time, but the short put required 1/3 of the capital. This capital efficiency makes the case for active management, and the near-identical performance dispels the myth that options are riskier than stocks.

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