Risk-averse investors have a new option for a safer bet on Tesla.
Innovative ETFs Launched TSLA Strategy Protected by ETF Creator (TSLH) – among other identified outcome products – last month.
According to the ETF’s CEO, Bruce Bond, it gives investors exposure to the stock while largely avoiding volatility and valuation risk by design. It’s a cushion ETF that uses a risk reversal strategy to minimize downside while also placing a profit limit.
“You buy TSLH, hedge Teslayou basically get 10% on the gain and you have a 10% floor,” explains Bond on CNBC’sETF Edge“last week.” Now what is the floor – it is the maximum loss of 10%. If Tesla drops 20%, you lose 10%. If it drops 50%, you lose 10%. “
Treasury bills make up about 90% of hedge funds “to provide a potential floor against significant quarterly losses,” the Innovator ETF reported in the ETF launch news release. The “call spread on TSLA using FLEX options” makes up the rest of the fund’s portfolio.
“The expected increase limit for the balance for the current quarter (through September) is 8.70%,” the company also said.
Bond explained to CNBC that its exchange resets every quarter but will never exceed 10%, noting that the ETF’s floor has remained at 9.23% when it launched.
The Creative Shielded TSLA Strategy ETF is up 5% since its launch on July 26. Meanwhile, Tesla stock is up 12% in the same time period.
This isn’t the first time Bond’s company has launched an ETF that uses this risk reversal strategy.
Innovation ETFs Have Started Innovator Defined Wealth Shield ETF (BALT) last year that focus on S&P 500 Table of contents.
However, this strategy is being adopted by the US Securities and Exchange Commission.
SEC Chairman Gary Gensler issued a statement shortly after addressing the risks that can arise from “complicated” exchange-traded products such as leveraged or inverse ETFs, highlighting the issues. potential problems with their short-term nature.
“However, these ETPs can pose a risk even for sophisticated investors and can create system-wide risk by acting in unforeseen ways before the market goes through extremes. volatile or stressful conditions,” Gensler’s October 2021 statement said,
Gensler recommends “potential rule-making” to help protect individual investors. However, Bond has defended the products of Innovator ETFs, showing that the buffers offer significant risk control value.
The SEC declined to provide a statement.
‘Just because it’s new doesn’t mean it’s complicated’
“I think FINRA [Financial Industry Regulatory Authority] are starting to realize that and the SEC is starting to realize that,” he said. Just because it’s new doesn’t mean it’s complicated. “
Bond thinks the identified wealth shield ETF could attract investors looking to steer clear of bonds. It executes an options strategy, selling at the top and placing the spread at the bottom.
“They know that rates are going up,” he said. “They’re pretty sure they’re going to lose money. They’d rather link their low-risk money to the stock market with a 20% buffer against losses.”
Bond added that the past year has seen very little market volatility.
The ETF is up 0.7% since its launch on July 1, 2021.
