WisdomTree Launches New Downside Hedging ETF Strategy

MarketsETF Trends

WisdomTree Investments has come out with its second put write ETF strategy to help investors better manage downside risk in the small-cap segment during an extended bull market environment.

On Thursday, WisdomTree launched the WisdomTree CBOE Russell 2000 PutWrite Strategy Fund (Cboe: RPUT), which has a 0.43% expense ratio.

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The WisdomTree CBOE Russell 2000 PutWrite Strategy Fund tries to reflect the performance of the of the CBOE Russell 2000 PutWrite Index, which tracks the value of a cash-secured put option sales strategy, consisting of selling or “writing” Russell 2000 Index put options and investing the sale proceeds in one-month Treasury bills, according to a prospectus sheet.

“Put writing has been used by professional investors for decades as a solution to increase the yield and lower the volatility of equity returns over various market cycles,” Russell Rhoads, Director, Product Advancement, Global Derivatives at Cboe Global Markets, said in a note.

Specifically, put options allow a buyer the right, but not the obligation, to sell a specific quantity of a security at a set strike price, or exercise price, on or before an agreed expiration date. The put option buyer would pay the seller a premium for this right to sell. The put write strategy would generate income through these premiums.

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