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PutWrite versus BuyWrite: Yes, Put-Call Parity Holds Here Too

9 Pages Posted: 9 Jan 2017 Last revised: 13 Feb 2017

Roni Israelov

AQR Capital Management, LLC

Date Written: January 13, 2017

Abstract

The CBOE S&P 500 PutWrite Index has outperformed the CBOE S&P 500 BuyWrite Index by approximately 1.1 percent per year between 1986 and 2015. That is pretty impressive. But troubling. Yes – troubling – because the theory of put-call parity tells us that such outperformance should be almost impossible via a compelling no-arbitrage restriction. This paper explains the mystery of this outperformance, which has implications for portfolio construction.

Keywords: Covered Call, Covered Calls, Call Overwriting, Overwriting, Options, Volatility Risk Premium, Variance Risk Premium, BuyWrite, Buy-Write, PutWrite, Put-Write

JEL Classification: G00, G10, G11, G11, G12, G13

Suggested Citation

Israelov, Roni, PutWrite versus BuyWrite: Yes, Put-Call Parity Holds Here Too (January 13, 2017). Available at SSRN: https://ssrn.com/abstract=2894610 or http://dx.doi.org/10.2139/ssrn.2894610

Roni Israelov (Contact Author)

AQR Capital Management, LLC ( email )

Two Greenwich Plaza, 3rd Floor
Greenwich, CT 06830
United States

HOME PAGE: http://www.aqrcapital.com

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