Market Measures

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It's Hard Making Money Buying Puts

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.

The recent sharp declines we have seen in the market may have some thinking about buying puts, but as premium sellers we are more inclined to sell calls. Has one performed better historically?

A study was conducted using SPY (S&P 500 ETF) from 2005 to 2015. We entered a trade every business day (3,000 occurrences) using the options closest to 45 days to expiration (DTE). We compared selling the 30 delta calls and held them to expiration to buying the 16, 30 and 50 delta put. We also tested managing the puts at 50%, 100%, or 200% if possible. If not, the trades were held to expiration.

Since we may look to buy premium when implied volatility (IV) is low, we ran the same study but sorted for occurrences when the VIX was below 15.

Buying puts was not profitable in either scenario.

Watch this segment of Market Measures with Tom Sosnoff and Tony Battista for the valuable takeaways and a detailed study comparing buying puts to selling calls.