Reconstructed defensive put
How the protective put overlay is modelled and what it costs.
The pre-listing history of UCITS ETFs running a protective put write strategy (for example UBS Euro Equity Defensive Put Write) is extended with a synthetic model built on public data. It is not the fund's official NAV.
How the strategy works
These ETFs follow a put-write strategy: they hold most of their assets in cash or money market instruments and systematically sell put options on an equity index, in this model, the EURO STOXX 50. Selling puts generates a premium collected immediately, which adds to the cash return.
When the market stays flat or rises moderately, the options tend to expire worthless and the fund keeps the premiums in full. In sharp falls, the sold puts move in the money and the strategy takes losses tied to downside exposure below the strike.
At each option's expiry the fund sells a new one with similar characteristics (rollover), maintaining continuous exposure.
The resulting profile is asymmetric: it benefits from flat or moderately rising markets and suffers in sharp corrections. The word "defensive" can mislead, this isn't protection against falls, it's selling that protection to someone else.
How it is reconstructed
With no historical option prices available, the premium and the value of open puts are estimated with Black–Scholes, using index level, volatility and rates.
Data used:
| Input | Source |
|---|---|
| Underlying | EURO STOXX 50, daily open and close prices (EOD) |
| Risk-free rate | 3-month Euribor / ECB, public daily series |
| Volatility | Estimated from recent returns of the reference STOXX 50 ETF, 21 trading-day window |
| After listing | EOD quotes of the real UCITS ETF, to bring the series closer to actual NAV and TER |
Caveats
- It does not replace official quotes, licensed benchmarks or investment advice.
- It is an approximation intended to enable longer backtests: tracking differences against the listed ETF remain, especially before listing.
- It is a proprietary Backtesto model and does not replicate the calculation method of any third-party index or listed ETF.
One specific limitation worth keeping in mind: volatility estimated on a rolling 21-day window is a proxy for the implied volatility that actually determines option premiums. The two diverge precisely when it matters most, when implied volatility spikes before realised volatility catches up. In sudden crashes the model therefore tends to understate the premiums collected.