I am comparing Put Write (PUT Index) Vs Buy Write (BXM Index) on S&P 500 -Put Write is a strategy that keep rolling S&P 500 Monthly ATM Put Options and keeps premiums in a cash accountBuy Write shorts Monthly ATM Call Options and keeps rolling them on a long portfolio of S&P 500.Since by Put-Call parity, ATM Call and ATM Puts should be same (if we neglect dividends/interest rates). Thus you would expect the two strategies to be very close to each other in terms of performance numbers. However in practice, PUT write has had a significant out performance over Buy Write over a long period of time (~391 bps Total Return since 1988) .Even if we assume that its short term rate and dividend differential that's making ATM puts more expensive than ATM calls (and thus making put write more attractive than buy write), should n't it be priced in the long S&P 500 basket of Buy Write? i.e. any reduction in ATM Call premiums (owing to dividends being higher than shorty term rates) be compensated by same factor baked in the long portfolio of S&P 500 thus bringing it at par with Put Write.Any light here would be deeply appreciated.

The BXM and Put conundrumQuoteOver the years, the CBOE has fielded the following question multiple times: Why is the CBOE S&P 500 PutWrite Index (PUT index) outperforming the CBOE S&P 500 BuyWrite Index (BXM index)? ... We find that the spread between PUT and BXM returns is not statistically significant, and that it is primarily explained by two factors: first, the differential effect of the spread between the SOQ and S&P 500 VWAP on roll-date returns past 2004, and second, structural differences between the designs of the indexes ...

And, also, these are American options: put/call parity doesn't hold...

Thanks Alan, but the question still remains there is significant difference and virtually PUT write has most of the time outperformed CALL write, performance differential between PUT Index and BXM Index is significant.

QuoteOriginally posted by: gs2440Thanks Alan, but the question still remains there is significant difference and virtually PUT write has most of the time outperformed CALL write, performance differential between PUT Index and BXM Index is significant.there is a bigger vol premium in otm puts vs otm calls. everybody is happy when equity markets go up.

Option prices are derived with risk neutral measure and by the replicating hedge/ no arbitrage arguments. The drift or expected return of the underlying does not matter for the option price. However, the drift matters for the expected payoff of an option. Thus, I would say ATM calls have a higher expected payoff than ATM puts on underlyings with a positive expected return above the risk free rate. Why do people buy puts? You could also ask why do people short stocks, although stocks according to CAPM have a positive expected return. Correct me if I am wrong.