What is the Put Write Index (PUT)? Definition, Formula, and Example
The CBOE S&P 500 PutWrite Index (PUT) tracks the performance of a passive, systematic strategy that sells at-the-money S&P 500 put options and holds cash equivalents as collateral.
Plain-English Definition
The CBOE S&P 500 PutWrite Index (ticker: PUT) is a benchmark index that measures the performance of a hypothetical portfolio that sells at-the-money (ATM) S&P 500 index put options on a monthly basis and fully collateralizes them with 1-month Treasury bills. It represents the returns generated by collecting options premiums and earning interest on cash, minus the losses incurred when the S&P 500 declines. The index demonstrates the risk-return profile of a mechanically executed short-put strategy, providing a direct comparison benchmark for institutional covered call and put-selling programs.
How it is Calculated
The PUT index calculation assumes the sale of one ATM S&P 500 put option on the third Friday of every month, matching the standard monthly expiration cycle. The option is held until expiration, at which point it settles against the SPX settlement value.
The mathematical return of the index for a given month is:
Monthly Return = Premium Collected + Treasury Yield − Option Payout
Where:
- Premium Collected: The price received for selling the ATM put at the start of the month.
- Treasury Yield: The return on holding 1-month T-bills as collateral for the duration of the contract.
- Option Payout: Max(0, Strike Price − SPX Settlement Price) × 100.
If the SPX closes above the strike at expiration, the payout is zero, and the index retains the premium plus the T-bill yield. If the SPX closes below the strike, the index absorbs the intrinsic loss.
Worked Example
Assume the SPX is trading at 5,000 on the third Friday of the month. The PUT index sells an ATM put with a 5,000 strike for a premium of $40.00 (or $4,000 per contract). Simultaneously, the portfolio buys $100,000 in 1-month T-bills yielding 0.4% annually (approx. 0.033% monthly).
At expiration one month later, the SPX closes at 5,050. The put expires worthless. The total return for the PUT index is the $40.00 premium plus the T-bill interest, reflecting a positive monthly gain.
Conversely, if the SPX closes at 4,920, the put option is in-the-money by $80. The payout is $80, but the premium collected was $40, resulting in a net options loss of $40. The index return for the month is -$40 plus the T-bill interest, demonstrating the asymmetric risk of short options.
When Traders Use It
Institutional traders and retail investors use the PUT index as a benchmark to evaluate the performance of their own systematic cash-secured put strategies. Because the index is passive and rules-based, it removes manager discretion from the equation. Quantitative portfolio managers use the PUT index to measure the Volatility Risk Premium specifically on the short-put side of the options market. When the PUT index outperforms the S&P 500 on a risk-adjusted basis, it highlights market conditions where option premiums were inflated relative to realized downside movements.
Limitations and Common Misconceptions
A major limitation of the PUT index is that it does not account for transaction costs, margin requirements, or bid-ask spreads, which are significant frictions for retail traders executing similar strategies. The index assumes the sale of exactly one ATM put per month, ignoring dynamic position sizing or rolling techniques that real managers use to mitigate drawdowns.
A common misconception is that the PUT index is a "safe" or low-risk strategy because it is fully cash-collateralized. While it eliminates counterparty risk, the short-put strategy has the same downside exposure as owning the underlying S&P 500 index. In a severe market crash, the PUT index will suffer substantial drawdowns, though it will fare marginally better than the SPX itself due to the premium collected.