When you buy a Put you have an option to sell at a specified price. When you sell a Put you have an obligation to buy at a specified price.
Imagine a strategy that sold Put options on Worldcom, Global Crossing, or JDSU in the 2000 tech bubble. How about Citigroup, home builders, or any of the reinsurers in 2008.
In an uptrending market, put writing strategies will generally win. In a strong, sustained downtrend, these strategies will get totally wiped out.
It's interesting to note that Wisdom Tree recently launched its ETF right on the verge of a potential, and major, stock market decline.
The Wisdom Tree ad appeared on my blog. If this post costs me ad revenue, so be it.
I always wonder about such obviously bad timing. Is Wisdom Tree betting against its own strategy? The same question applies to the short volatility ETFs that recently went to zero.
Mike "Mish" Shedlock