Most active traders are of the "do it yourself" variety. That might be because the internal drive to get things accomplished on one’s own is a perfect fit for managing investments.  

And if you’re already an active investor, or considering doing so at some point in the future, a recent episode of Market Measures is worth a few moments of your time.

This episode does a great job of illustrating just how easy it can be to actively trade, and in doing so, cut out the unnecessary expense of having someone else do it for you.

On the show, the Market Measures team introduces and discusses the symbol PUTW, which is the WisdomTree CBOE S&P 500 PutWrite Strategy Fund (quite the mouthful). The PUTW is an ETF that uses its funds to sell puts - which are then held through expiration.

The PUTW, therefore, affords an excellent opportunity to compare and contrast active versus passive investing. Which is exactly what the team does on Market Measures.

In order to produce the data necessary to make such a comparison, tastytrade ran a study evaluating performance in the PUTW since origination. Alongside that, the team also examined how a simple active trading approach that sold puts in the SPY would have performed.

For the latter approach (active trading), the backtest included data going back to the day PUTW originated. It also included four different scenarios, because active traders have the power to choose different approaches when managing their investments directly.

The four scenarios for active management (when selling ATM puts in SPY), included:

  • held through expiration

  • managed winners at 50%

  • leveraged at 1.25 notional value

  • leveraged at 1.50 notional value

As you might expect, the active strategy of holding SPY ATM put sales through expiration produced almost the same results as PUTW (similar approach). The primary difference in this case being that the active trader did not have to pay the annual 0.38% management fee.

The chart below shows the relative performance of each approach (PUTW and the four active strategies), with the assumption that all account values started at $100,000:

active trading: cutting out the middleman

As you can see from the above graphic, the active trading approach at worst matches the PUTW, while affording the trader a lot more freedom and flexibility.

Additionally, if the trader decides to manage the positions, or leverage capital, it’s possible the account can produce significantly more return than simply purchasing the strategy from a middleman (and paying the extra fee on top of that).

This episode is a great reminder that every market participant needs to evaluate the economic value of their investment approach. It’s possible that unnecessary fees are reducing potential returns, especially for traders that are inclined to manage their own accounts.

We hope you’ll take the time to review the entire episode of Market Measures focusing on the PUTW versus an active approach to selling puts when your schedule allows.

If you have any questions related to this topic, or any other in the world of trading, we hope you’ll leave a comment in the space below, or reach out directly at support@tastytrade.com.

We look forward to hearing from you!


Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.