Managing Downside Exposure with PPUT Index – Blog #3 on 30-Year Price History

[This is the third in a series of nine blogs to be published in early July at the CBOE Options Hub on nine CBOE benchmark indexes which have price histories that begin on June 30, 1986, more than three decades ago.]

When a novice investor asks me to describe an options strategy, I often use an insurance analogy – millions of people buy insurance policies and pay premiums to insure their autos and homes against disasters, and equity options investors pay premiums to mitigate downside equity risk with protective put options positions. Prior to 2015, there were no major benchmarks that showed multi-decade performance of protective put strategies.

Last year CBOE introduced the CBOE S&P 500 5% Put Protection Index (PPUT), an index that is designed to track the performance of a hypothetical strategy that holds a long position indexed to the S&P 500 Index and buys a one-month 5% out-of-the-money S&P 500® Index (SPX) put option as a hedge. The PPUT Index rolls on a monthly basis, typically every third Friday of the month, and the price data history for the PPUT Index begins in mid-1986.


Costs for put options can vary over time as implied volatility changes. The chart below shows Bloomberg estimates for 30-trading-day implied volatility for SPX options with 95% moneyness; so far this year some of the peak values were 29.33 on February 11th and 25.58 on June 24th (after the news of the Brexit referendum hit).



Over the past 30 years the PPUT had less volatility than the S&P 500, MSCI EAFE®, and S&P GSCI indexes.


Over the past 30 years the PPUT had higher returns than the MSCI EAFE and S&P GSCI indexes. However, the PPUT had lower returns than the S&P 500 Index, due in part to the fact that the SPX options during the three decades generally were richly priced, and the PPUT bought SPX options 12 times a year. To read more about risk disclosures and papers on richness of pricing of SPX options, please visit,



The table below shows that, for the five months in which the S&P 500 Index dropped by more than 10%, the PPUT Index experienced drops that were not as severe as those of the S&P 500.


The histogram with the S&P 500 and PPUT indexes shows that the S&P 500 had 26 months with declines of worse than six percent, while the PPUT Index had 17 such months. Certain index options strategies can be used to help manage left tail risk.



The microsite for the PPUT Index is at

For more information on dozens of CBOE benchmark indexes, please visit for research papers and price charts,

If you would like to hear expert speakers discuss options and volatility, please visit to learn more about these upcoming CBOE Risk Management Conferences —

• RMC EUROPE 2016, Sept. 26 – 28, 2016, Powerscourt Hotel, County Wicklow, Ireland
• RMC ASIA 2016, Nov 30 – Dec 1, 2016, Conrad Hong Kong Admiralty, Hong Kong
• RMC US 2017, March 8 – 10, 2017, St. Regis Monarch Beach, Dana Point, California

(The author thanks Paige Stodden for her assistance in creating charts for this Blog).