ETFs offering access to alternative strategies have proliferated over the years with mixed results in terms of attracting assets and performance. If you read enough content on ETFs and portfolio construction you will find a range of opinions on alts from 'they've been created to steal from investors' to 'you should have 30% allocated to alternatives.'

I've been interested in alternatives going back to the 1990's when I first learned about Jack Meyer's use of timberland holdings as a diversifier when he was the CEO of the Harvard Management Company (the Harvard endowment) and have used them for clients in varying allocations for about 15 years when they started to become more available in investment products aimed at retail sized accounts.

In my opinion, using the right alternatives in modest doses can help manage portfolio volatility and increasing exposure can be effective as part of a defensive strategy. If you don't believe in that, then obviously you don't use them. Part of using alternatives is to study alternatives to try to assess whether something merits use or not. I went through this on the blog a couple of years ago in detail with AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL) which continues to be a client and personal holding.

One fund I have looked at quite a few times has been the WisdomTree CBOE S&P 500 Putwrite Strategy Fund (PUTW). I like WisdomTree and used to be friendly with the company when it first got going thanks to my involvement with TheStreet.com way back when, I met Jeremy Siegel once and went to an event they held at the NYSE. Their products are interesting and I usually try to understand funds like PUTW and others. Put writing (selling put options) is generally viewed as a way to lower volatility, capture a decent portion of the equity market's return in nominal terms and hopefully offer a better risk adjusted return. The job I had at Charles Schwab during the inflating of and popping of the internet bubble gave me a front row seat to watching many people blow themselves up selling put options.

An example of the mechanics; a stock is trading at $50, you sell a put option at a strike price of $45 for $1 in option premium expiring at some point in the future. If the stock stays above $45 all the way through to expiration in this example you would keep the premium. It doesn't have to stay above $45 the whole time but that's a little more nuanced. If the stock drops to $40, you would be assigned on your put meaning you'd by the stock at $45 and so factoring in the $1 you received in premium you'd be down $4 and you'd own the stock. This trade would be collateralized with $4500, the cost of buying the 100 shares at 45 (most options control 100 shares of stock).

During the tech wreck stocks were cut in half or worse in a matter of weeks. Imagine paying $30,000 to buy 100 shares of stock that had a current market value of $9000, you'd be down $21,000 right way (you'd still have your premium so not down that much). Even worse, back then puts could be sold with leverage such that instead of putting up $4500 you only needed to put up 25% of the $4500 (subject to a minimum dollar amount), I'm not sure if selling puts with that kind of leverage is still possible. People were building entire portfolios with puts sold on leverage and were then wiped out, literally, when the stocks started to implode. I think I was lucky to see this because it made me skeptical of ever doing this for clients. I've continued to be interested enough to study it still but have never done it for clients. I could sum up the way I view it as I wish the reality lived up to the theory.

Back to PUTW, here's a chart over the last 15 months or so which is a great time frame to look at for many things because it included a panicked decline and a pretty big rally.

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I'd have to say it has been less volatile than equities most of the time but not when someone might most hope it would be less volatile, during the panic of late 2018. Then it had trouble getting off the mat in what was a great year for the equity market. The actual performance is a little better as I don't believe Yahoo captures total return and a couple of times it has had large payouts.

If it's fair to conclude that it goes down with the equity market but doesn't go up with it, then I don't know why anyone would want to own it.