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The CBOE S&P 500 PutWrite Index (PUT): An Explanation and Evaluation of Lessons Learned

The PutWrite Index (“PUT” or “$PUT)  is an index created by the CBOE (Chicago Board options Exchange) which acts as a benchmark index that measures the performance of a hypothetical portfolio that sells S&P 500 Index (SPX) put options against collateralized cash reserves held in a money market account. It is similar to the “BXM” which tracks the performance of a hypothetical S&P 500 covered call strategy.


Comparison to our traditional strategy of selling cash-secured puts

When we sell cash-secured puts, we place an adequate amount of cash into our brokerage account to pay for a possible future stock transaction (buy the shares) if the put option is exercised. In the PutWrite Index, an added element of buying one- and three-month Treasuries in a specific rotation is added to the strategy. Here’s how it works:

  • Every 3rd Friday of the month when the puts expire is known as the “roll date” which is set up in sequences of three roll dates. In roll dates one and two, 1-month Treasuries are purchased and in roll date three, 3-month Treasuries are purchased. The amount purchased would be adequate to finance the maximum possible loss from final settlement of the SPX puts should SPX move to zero. This is known as collateralizing the puts. As portfolios are re-balanced on the roll dates, the portfolio will be long 1- and 3-month Treasuries and short 1-month SPX puts
  • On roll dates at-the-money puts are sold that do not exceed the current value of SPX
  • The cash proceeds from put sales are invested in 1- or 3- month Treasuries depending on the roll date of the 3-month sequence
  • If puts expire in-the-money, the final settlement loss is financed by the Treasury Bills
  • The number of puts sold at each roll is determined by the maximum final settlement loss to account for a worst-case scenario (S&P 500 drops to zero)


Long-term results

The PutWrite Index generates returns slightly higher than the S&P 500 with less portfolio volatility and higher risk-adjusted returns. The index performs particularly well in bear markets where put premiums are highest as volatility tends to be elevated and puts are being purchased to hedge portfolio risk. Here is a comparison chart of PUT vs. SPX from February, 2015 through February, 2016:


selling cash-secured puts

“PUT” vs. SPX: 1-Year Chart

Why retail investors can do so much better

So far, this strategy doesn’t seem so bad but we can absolutely out-perform this index as we can any computer-generated strategy where one size fits all and every situation is handled in a robotic fashion no matter what extenuating circumstances exist at the time. Cases in point:

  • When we are leveraging an entire index, we are using every stock in that index, the good, the bad and the ugly…no stock selection
  • Only at-the-money strikes are used, discounting overall market assessment where we can take advantage of out-of-the-money (lower than current market value) and in-the-money strikes (higher than current market value)…no strike selection
  • The index waits for final results and settlement on the roll or expiration dates. With traditional selling of cash-secured puts we have an array of position management techniques to mitigate losses and enhance gains…no exit strategies



The CBOE S&P 500 PutWrite Index (PUT) is an outstanding tool that demonstrates the value of the put-selling strategy. However, like all computer-generated blueprints, it has its limitations. Practical application of the three required skills for option-selling (stock selection, option selection and position management) will allow the retail investor to far exceed the above-average historical returns of this index as well as the covered call writing index (BXM).


Upcoming live appearance

New York Stock Traders Expo

February 21st – 23rd

Marriott Marquis Hotel, NYC


Trader’s Expo video

Click here


Live interview

On March 15th at 9 PM ET, I will be interviewed live on blog talk radio (Solutionsology Radio). I will provide the link to this event once I receive it. The focus of the conversation will be about my third book, The Complete Encyclopedia for Covered Call Writing.


Market tone

Stock markets around the world rebounded modestly this week. The Chicago Board Options Exchange Volatility Index (VIX) dipped to 20.53 from 27.5 last week, a positive for conservative investors. This weeks reports and other international news of import:

  • Saudi Arabia and Russia proposed crude production caps however Iran rejected the offer. markets reacted positively and then negatively on the Iran news
  • European leaders gathered in Brussels on Thursday to begin final negotiations on a deal to help prevent the United Kingdom from exiting the European Union
  • The European Central Bank is ready to “do its part” to spur more growth, Mario Draghi told a committee in the European Parliament on Monday.  If inflation weakens further, the ECB will not hesitate to act, the ECB president said.
  • Members of the US Federal Reserve’s Federal Open Market Committee said at their January meeting that it would be premature to change their outlook for the US economy but added that they would closely monitor global economic developments, as well as oil and stock prices
  • They discussed “altering earlier views of the appropriate path for the target range for the federal funds rate,” given the recent tightening of global financial conditions
  • Consumer prices in the US were unchanged in January versus December, but the core Consumer Price Index, which strips out volatile food and energy prices, rose 0.3%, its fastest rate in over four years
  • Recent market whipsaws have not led to large-scale layoffs, according to weekly jobless claims data. Initial claims for state unemployment benefits fell to 262,000 from 269,000 the previous week. That is only 6,000 above the low for the cycle and a sign that the US labor market continues to improve
  • Claims have been below 300,000 for 50 straight weeks, the longest such streak since the early 1970s, according to Reuters.

For the week, the S&P 500 increased by 2.84% for a year-to-date return of – 6.17%. After three consecutive bullish days (Friday, Tuesday and Wednesday), Thursday and Friday resulted in modest selling on light volume, very encouraging.


IBD: Market in confirmed uptrend

GMI: 1/6- Sell signal since market close of December 10, 2015

BCI: I have been in 1/3 cash in the stock portion of my portfolio the past several weeks due to the market turmoil. For the March contracts, I am putting that cash back to work…vacation over. However, I will remain focused primarily in defensive positions, selling out-of-the-money puts and in-the-money calls in a ratio of 3-to-1 over more aggressive positions.

Best regards,

Alan ([email protected])


About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

21 Responses to “The CBOE S&P 500 PutWrite Index (PUT): An Explanation and Evaluation of Lessons Learned”

  1. PJ February 20, 2016 6:39 am #

    Hi Alan, hope all’s well with you!
    Two quick questions:
    #1: At this stage in the market’s attempted recovery, a confirmed uptrend, would you be long in stocks,
    doing in-the-money calls, or out-of-the-money calls?

    #2: You talk about double and triple plays, but when you buy back your options, to resell them at lower
    levels, don’t you forfeit the original premium you received?


    • Alan Ellman February 20, 2016 6:41 am #


      My responses:

      1- Until I am more convinced that we have an established bottom, I am selling ITM calls/OTM calls at a ratio of 3-to-1 (3 ITM for every 1 OTM). I will be fully invested for the March contracts.

      2- When “hitting a double”, we use the 20% guideline where the short call is bought back when premium value has declined to 20% or less of the original option sale. If we sold the option for $2, buy-to-close at $0.40 or less. This means we have retained 80% of our original option profit. This guideline changes to 10% in the second half of the contract, but there I am more likely to roll down or sell the stock after closing the short call. See specific examples in the exit strategy sections of my books and DVDs.


  2. Paul February 20, 2016 4:59 pm #


    Somewhere in one of your videos I think you said to
    sell options that have no more than a 0.30 spread
    between bid and ask and a minimum open interest
    of 100. Is this correct? I ask bcuz I haven’t run into
    these rules (or the 20-10 rule) in the “Cashing In on
    Covered Calls” book yet, and I wanna make sure
    my assumptions are correct.

    Also, I’ve run into a lot of situations (mostly ITM situations)
    where I can’t seem to find spreads of 0.30. What do you
    do in situations like this?

    Thank you for being available to answer my questions,
    I very much appreciate it! : )


    • Alan Ellman February 20, 2016 5:09 pm #


      CCCs was the first book I published in 2007. Over the years I have added and enhanced guidelines like option liquidity requirements and the 20/10% guidelines. Both Encyclopedias have the most up-to-date information and the classic version should be read first. You can also do a Google search on this site to access free information on this and other topics.

      The current guidelines for option liquidity are a minimum of 100 contracts of Open Interest (not Volume) and/or a bid-ask spread of $0.30 or less. If spreads are too wide you can either opt for a different stock/option trade or leverage the “Show or Fill Rule” to negotiate a better price with the market makers (also in both Encyclopedias or available with Google searches on this site.


  3. Barry B February 20, 2016 5:46 pm #

    Premium Members,

    This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor Premium Member website and is available for download in the “Reports” section. Look for the report dated 02/19/16.

    Be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them at The Blue Collar Investor YouTube Channel.

    Since we are in “Earnings Season”, be sure to read Alan’s article, “Constructing Your Covered Call Portfolio During Earnings Season”.


    Barry and The Blue Collar Investor Team

  4. Adrian February 20, 2016 8:30 pm #

    Alan, just had some questions overlooked at bottom of last weeks article, hoping to know answers before market opens Monday if you can see to these thanks.

    • Alan Ellman February 21, 2016 6:50 am #

      From last week’s blog:


      You asked about scenarios when market conditions resulted in a modest list of stocks that passed our rigorous standards. Next best would be to check the stocks in the pink cells that may have “just missed out” from a technical perspective. I am not encouraging this as a routine procedure, just responding to your inquiry. Also, in most weeks, our list will be more robust as it is in the 2/20/2016 report compared to the 2/13/2016 report.

      It is okay to sell OTM strikes in bearish/volatile market environments depending on how bearish and how chart technicals look. I will usually select strikes on a percentage basis…some ITM and some OTM.

      We can wait for volatility to subside but this could take us out of the market for significant time frames. Adjusting our techniques to these conditions is another approach…the one I am comfortable using.

      Sometimes, we will need to move out of a stock when selling Weeklys but we must be cognizant of the calculations. Up front, we are accepting 4-5 times the number and amount of commissions when selling Weekly call options compared to Monthlys. If we also change underlying securities, those commissions would end up 8 -10 times those from selling Monthlys. In your example, the stock price dipped $0.80 by expiration and so may remain in play for OTM or ITM next month calls.


  5. Lyn February 21, 2016 6:28 am #


    In this week’s Stock Screen you say that you are “selling out-of-the-money puts and in-the-money calls in a ratio of 3-to-1 over more aggressive positions.”

    I never sell in the money calls because I have acquired all the stocks I own with the anticipation that they will go up in value during the current bearish climate – with some ups and downs along the way. Just so I understand why you are selling in the money calls now, is it because you don’t mind selling your stocks at a loss because the premium earned will more than offset that loss and the lower strike price will give you more downside protection?



    • Alan Ellman February 21, 2016 7:00 am #


      Yes, you are 100% correct. I use ITM strikes when overall market assessment is bearish or volatile or both. The option premiums will consist of both intrinsic value + time value. Intrinsic value will “buy down” our cost basis leaving the time value only to represent our true initial profit. INTRINSIC VALUE PROTECTS TIME VALE.

      Let’s say a stock is trading at $42 and we sell the $40 ITM call for $3. This breaks down to $2 intrinsic value + $1 time value. Our cost basis is now $40 and initial returns = $1/$40= 2.5%. This initial profit is guaranteed as long as share value does not decline below $40 so our downside protection OF PROFIT = $2/$42 = 4.8%.

      The disadvantage of ITM strikes is that we have no opportunity for share appreciation which is why we favor these strikes in bear/volatile markets. In normal to bull markets, we favor OTM strikes.


  6. Alan Ellman February 21, 2016 7:17 am #

    NYC Stock Traders Expo highlighted presentations at the registration desk:


  7. Amir February 21, 2016 12:24 pm #


    First of all I would like to thank you for all the great explanations in your web site. I learned a lot from you.

    I would like to ask you what is the recommended period for a cover call position (e.g. a week or a month).

    Thanks again,

    • Alan Ellman February 21, 2016 12:29 pm #


      I am a firm proponent of short-term options. I prefer Monthlys but we also have many members who like Weeklys. Weeklys may offer greater annualized returns and a way to circumnavigate around earnings reports. Monthlys have greater open interest, smaller bid-ask spreads, greater opportunity for exit strategy execution and 1/4 the number and amount of trading commissions.

      As long as we understand the pros and cons of each approach, either can be successful time frames to sell options.


  8. Jay February 22, 2016 8:23 pm #


    What was foremost in your mind deciding to be fully invested for March expiry?

    I am not there yet. May not be until after the next dip. Lots of resistance above us now. But seasonality is strong.

    Thanks, – Jay

    • Alan Ellman February 26, 2016 4:40 pm #


      It was a mosaic of several factors. In the past month, the S&P 500 is up 2.5% and the VIX is down 12.5%. Economic reports over the past several weeks have been mixed to positive. Now, these factors are not enough for me to take bullish stances on my positions but are enough to get me back to fully invested with defensive positions. See chart below:



  9. Alan Ellman February 24, 2016 8:58 am #


    We just returned from 4 days at the Marriott Marquis Hotel in NYC for the Stock Trader’s Expo where I had 6 hours of presentations. I’m great…my throat isn’t. I’ll be traveling again tomorrow but will catch up on all correspondences during the next week. It was so great meeting so many BCI members at the event.


  10. Dan P February 24, 2016 2:30 pm #

    Hi Alan,

    I was sick and missed work the entire week last week. During this time, I watched many of your videos on YouTube and, as a result, maybe being sick wasn’t such a bad thing. I really appreciate all of the free education you are providing to people on YouTube. I enrolled for your premium service and made my first options trade yesterday. I am starting very small, with an opening balance in my discount brokerage account of $3000. As of today, I have $3070 in my account, a 2.33% profit on my first trade. I could have received a better premium if I had not gone so far out of the money on a cash secured put, but I am just “dipping my foot in the water” and wanted my first trade to be pretty conservative.

    As I become a better trader, I may elect to trade with the larger amount of money I have in my self-directed IRA account. My question is, do you feel there ever an amount of money that is too much when selling covered calls and cash secured puts? In other words, If you do really well and eventually are dealing with millions of dollars in an account, do you need to make more trades at a lower dollar amount? For example, with one million dollars, could you do 5 trades at $200k each, or is that too much and it would be better to break it down to 20 trades at $50k each….or even 40 trades at 25k each?

    I know I am just a beginner and I am getting the cart a bit in front of the horse, but if you have an opinion on this, I would appreciate hearing it.

    Thanks again, your videos on writing covered calls and cash secured puts really make sense to me and have enlightened me on a topic that I was confused by in the past.

    Dan P.

    • Jay February 24, 2016 7:53 pm #


      I am no Alan and he will get back to you after his travels!

      But your post struck a chord with me so I hope you do not mind if I offer an opinion. The biggest mistake I ever made in my investing was getting “bigger than my britches.” By that I mean I took increasing risk before I really understood what I was doing or had felt fully the pain of being wrong. Like many investors I had some beginner’s luck which gave me a false sense of confidence.

      Too many people new to trading, even methods as conservative as we discuss here, focus on potential return paying less heed to risk. That is completely backwards. Always focus on risk first, reward second.

      If you assume the worst even mediocrity will delight you :). Jay

    • Alan Ellman February 27, 2016 8:31 am #


      Let me add this to Jay’s very reasonable comments…

      Diversification is essential whatever strategy is being used. When selling options on individual stocks, I recommend at least 5 different stocks in 5 different industries. Since each options contract requires us to buy 100 shares of the underlying security, we would need to fund an account with $25k if each stock averaged $50 per share.

      One way of circumventing this issue is to use ETFs (I use this in my mother’s account) which are baskets of stocks in one security so diversification is reached at a much lower cash requirement. If you are starting with a $3000 funded account, I suggest my book, “Stock Investing for Students” which will discuss setting up a plan to grow your portfolio value in a conservative way using low expense-ratio mutual funds. Once your account reaches $25k, you can then move over to stocks and option-selling. In the interim, the education process moves forward and by the time your portfolio is ready for options, you will be too. Take your time to master all 3 aspects of option-selling and then you will have years and decades to benefit.

      As far as the number of positions to manage, this is an individual decision…one size does not fit all. I trade between 15 – 25 stocks and sell between 50 – 100 contracts per month. That is my personal comfort zone. It would be uncomfortable for me to manage more and do all the other things that are important to me (like responding to your question!). I would start small (5 positions for stocks and less for ETFs) and go from there.


  11. Tony February 24, 2016 3:31 pm #


    With the volitility in the market, when trying to select a new at the money strike, is it based on the stock price at that very minute?


    • Alan Ellman February 26, 2016 4:43 pm #


      Yes, we use current market data to make current investment decisions. If a stock is trading at $50.00, the $50 strike is ATM. If we paid $48 or $52, the ATM strike is $50. Using old data will only cloud our investment decisions at any point in time. For tax issues, if trading in non-sheltered accounts, calculations are handled differently.


  12. Alan Ellman February 24, 2016 6:07 pm #

    Premium members:

    This week’s 8-page report of top-performing ETFs and analysis of ALL Select Sector Components has been uploaded to your premium site. The report also lists Top-performing ETFs with Weekly options.

    Gold ETFs are still outperforming.

    For your convenience, here is the link to login to the premium site:

    NOT A PREMIUM MEMBER? Check out this link:

    Alan and the BCI team

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