Odds & Ends: ETF Options Upon Options

Options strategies were the theme of this week’s ETF launches, with seven of the 10 using options to protect against losses and generate income.  

Two buffer exchange-traded funds launched Monday. These ETFs use options to cap the potential gains and losses on holding a particular stock portfolio. These come after last week saw the launch of the first buffer ETF that protects against 100% of downside loss, similar to a variable annuity.  

Buffer ETFs work by selling call options, options to buy stock, and using that money to buy put options, options to sell a stock. If the stocks they hold go down, they can sell at the now higher put-option price to offset the losses, while, if stocks go up past the call options they’ve sold, any rise over that is lost because they need to sell at the call price. 

Another way ETFs can use options strategies is to turn a normally growth-based stock into an income investment. By selling call options at the current stock price, you can sell off gains from the stock rising in exchange for guaranteed income, though with the potential for losses if your stock portfolio drops.  

Three funds that launched on Tuesday and Friday have income-generating options strategies on Amazon, Meta and Alphabet stock, while one launched on Wednesday that does so for the Dow Industrial Average. 

Launches 

Monday:  

• FT Cboe Vest U.S. Equity Moderate Buffer ETF – July (GJUL) 
• FT Cboe Vest U.S. Equity Enhance & Moderate Buffer ETF – July (XJUL) 

Tuesday: 

YieldMax AMZN Option Income Strategy ETF (AMZY) 

Wednesday: 

• Global X Dow 30 Covered Call & Growth ETF (DYLG) 
• PGIM AAA CLO ETF (PAAA) 
• PGIM Short Duration Multi-Sector Bond ETF (PSDM) 

Thursday: BrandywineGLOBAL - U.S. Fixed Income ETF (USFI) 

Friday:  

• YieldMax META Option Income Strategy ETF (FBY) 
• YieldMax GOOGL Option Income Strategy ETF (GOOY) 

Closures 

Tuesday: Fount Metaverse ETF (MTVR) 

Thursday: ALPS Hillman Active Value ETF (HVAL) 

Friday: 

• TrueShares ESG Active Opportunities ETF (ECOZ) 
• Revere Sector Opportunity ETF (RSPY) 

Fund Changes 

Monday: The Sound Equity Income ETF (DIVY) changed its name to the Sound Equity Dividend Income ETF. 

Contact Gabe Alpert at [email protected]