Failed Wagers Against Stocks Are Giving Put Sellers Best Return in Decades

The surprisingly resilient equity market is invigorating a time-honored options strategy, driving it to the best start of a year in two decades.

The Cboe S&P 500 PutWrite Index (ticker PUT), which sells at-the-money bearish options on the benchmark against cash reserves, has climbed in all but one of the past 17 sessions, scoring a win rate not seen in four years. Up more than 7% since January, the strategy has notched a gain bigger than any time since 1999 this far into a year.

The trade has worked in part because the market has defied doomsayers, with its increasing tendency to go up echoing the last bull market.

Thanks to widespread defensive positioning among investors, the market has become less vulnerable to headwinds ranging from central bank tightening to earnings downgrades and multiple failures at regional lenders.

With stocks having refused to fall in any big way, put options often expire worthless, letting anyone who sold them pocket the premium.

The “spot index simply can not sell off with any magnitude with so much bearish sentiment and under-positioning,” Nomura Securities International’s cross-asset strategist Charlie McElligott wrote in a note.

The success is in stark contrast from the 2022 bear market, when the same trade posted its worst year since the global financial crisis. It marks a powerful comeback for a strategy that lost money in only one year during the previous decade.