WisdomTree Files For New Russell 2000 PutWrite Strategy ETF

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July 31, 2017 1:59pm NYSE:HEDJ

ETF issuer WisdomTree has filed to launch a new fund that aims to harness the power of options to benefit investors in a sideways market.

According to the SEC filing, the WisdomTree CBOE Russell 2000 PutWrite Strategy Fund will track an index that sells put options on the small cap Russell 2000 index, with any proceeds invested into short term Treasuries:

The Index tracks the value of a cash-secured (i.e., collateralized) put option sales strategy, which consists of selling (or “writing”) Russell 2000 Index put options (“RUT Puts”) and investing the sale proceeds in one-month Treasury bills. By selling a RUT Put, the Fund receives a premium from the option buyer, which increases the Fund’s return if the option is not exercised and expires worthless. If, however, the value of the Russell 2000 Index falls below the RUT Put’s strike price, the option finishes “in-the-money” and the Fund pays the buyer the difference between the strike price and the value of the Russell 2000 Index. The Index’s strategy (and, accordingly, the Fund’s strategy) of selling cash-secured RUT Puts serves to partially offset a decline in the value of the Russell 2000 Index to the extent of the premiums received. Further, if the value of the Russell 2000 Index increases beyond the amount of premiums received, Index (and Fund) returns would not be expected to increase accordingly.

In essence, during sideways market for the Russell 2000, investors will profit. The fund will underperform the Russell 2000 if the index rises, and will fall if the RUT declines below the strike price of the put options.

This new fund is very similar to the current WisdomTree CBOE S&P 500 PutWrite Strategy ETF (PUTW), which employs a similar strategy on the S&P 500 index.

The ETF filing didn’t include other key information like expense ratio, ticker, or listing exchange, so we’ll look out for those details when they emerge later.

WisdomTree’s current largest fund, the $9.165 blllion WisdomTree Europe Hedged Equity Fund (NYSE:HEDJ), was trading at $61.99 per share on Monday afternoon, down $0.43 (-0.69%). Year-to-date, HEDJ has gained 10.09%, versus a 11.53% rise in the benchmark S&P 500 index during the same period.

HEDJ currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 86 ETFs in the European Equities ETFs category.

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