Lifetime Income: S&P500 Plus Protective Put Options

This month’s analysis is another twist on the constant payout strategy I covered earlier.  That strategy consisted of putting all capital in S&P500 ETF’s, and drawing out a constant amount each year.  This provides a fixed annual payout for as long as the capital lasts.

In this month’s strategy, all capital is again invested in S&P500 ETF’s, and a constant amount is withdrawn each year.  However, an additional amount is withdrawn and invested in 12-month put options on the S&P500 ETF.  If the market has a significant drop during the year the put options offset a portion of the decline, so that any subsequent market rise will boost capital from a higher base.  If the options are not in the money at the end of the year, the principle balance is lower than it would have been had the options not been purchased.

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