Investors have enjoyed great runs in the equities and fixed-income markets, but with traditional assets hitting new record highs, investors are more susceptible to greater downside risks. Investors may consider options-based strategies to help mitigate that potential downside and better manage their future risks.
In the upcoming webcast, How Options-Based Strategies May Provide Protection, Ben Jones, Senior Index Strategist, Nasdaq; and Rohan Reddy, Research Analyst, Global X ETFs, will highlight various options-based ETF strategies that may help financial advisors diversify a traditional stock and bond portfolio to meet any challenges ahead.
For example, the Global X Nasdaq 100 Covered Call ETF (QYLD) follows the CBOE Nasdaq-100 BuyWrite V2 Index. The ETF offers covered call exposure to the popular Nasdaq-100 Index (NDX). Suppose you want to maintain exposure to tech and the broader Nasdaq-100. In that case, QYLD is a great vehicle where it invests in stocks within the Nasdaq 100 Index and then writes at-the-money Nasdaq index options against the equity portfolio. The options’ premium received will increase with volatility. This can potentially benefit investors as they will receive a higher monthly dividend and the potential for a higher buffer of protection to the downside in the event of a market selloff.
Covered call strategies can potentially augment a portfolio during periods of heightened volatility. The covered-call options allow an investor to hold a long position in an asset while simultaneously writing or selling call options on the same asset.
Traders would typically employ a covered-call strategy when they have a neutral view of the markets over the short term and just gather income from the option premium. While these buy-write ETFs may not produce any phenomenal price returns compared to the broader equities markets, their underlying option strategy helped them generate outsized yields.
Global X has recently augmented its suite of options-based ETF strategies to include protective put funds. For example, the Global X S&P 500 Tail Risk ETF (XTR) seeks to offer passive investment results that correspond to the underlying index, the Cboe S&P 500 Tail Risk Index. This index measures the performance of a protective put strategy that is applied to the underlying stocks of the S&P 500 Index.
The Global X Nasdaq 100 Tail Risk ETF (QTR) seeks to offer passive investment results that correspond to the underlying index, the Nasdaq-100 Quarterly Protective Put 90 Index. This index measures the performance of a protective put strategy that is applied to the underlying stocks of the Nasdaq 100 Index.
The Global X Nasdaq 100 Risk Managed Income ETF (QRMI) seeks to offer passive investment results that correspond to the underlying index, the Nasdaq-100 Monthly Net Credit Collar 95-100 Index. This index measures the performance of an options collar strategy that is applied to the Nasdaq 100 Index, using a mix of short (sold) call options and long (purchased) put options.
Additionally, the Global X Nasdaq 100 Covered Call & Growth ETF (QYLG), which debuted last September, tracks the CBOE Nasdaq-100 Half BuyWrite V2 Index. That may sound like a complex name for an index, but QYLG’s strategy is straightforward. The fund splits its investments between the Nasdaq 100 and covered calls.
Financial advisors who are interested in learning more about an options-based ETF strategy can register for the Tuesday, December 7 webcast here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.