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.

A simple short put strategy can seem risky at first, but looking at past performances and volatility around it tells a very different story.

Study
  • SPY, 2005 - present
  • Sold 1 ATM put continuously, managed at 50% of max profit or held to expiration
  • Bought 100 shares of stocks and adjusted for dividends.
  • Compared cumulative performance volatility of P/L

It turns out that the put strategy performs nearly the same as the long stock but carries only half the volatility. This suggests that options can be a safer bet than carrying stock.

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