Heading into the fourth and final quarter of 2025 continues to bring a high level of uncertainty. This isn’t relegated to the equities market, but also the bond markets. To help ease the anxiety, options-based ETFs can provide assistance. However, a common refrain surrounding these products is: How do they work and how do they fit into my portfolio?
TMX VettaFi investment strategist Cinthia Murphy was joined by Fidelity Investments VP/Head of ETF Strategists Craig Ebeling and Investment Product Group Director Rob Mouritsen in a webinar: Unlock Opportunities with Options-Based ETFs. Ebeling and Mouritsen dispelled the myths surrounding options-based ETF products with a quick primer on their strategies. Additionally, they shared three Fidelity funds that can slot into various portfolios.
Why Use Options-Based ETFs?
At the beginning of the webinar, the audience’s experience with options-based ETFs was assessed with a question: What is the primary goal of using options-based ETFs? The common answer was managing risk and portfolio volatility.
“For a lot of our clients, it’s very outcome-oriented,” Ebeling said. “They have problems or scenarios they’re looking to solve for whether that be changing interest rates, volatility in the market, downside they’re trying to protect against, and there’s a simple, math-based approach that you can use options to solve for those different scenarios.”
“These options-based strategies, whether it’s ours or others, have that opportunity to keep clients invested through different market cycles, adding some downside protection or some volatility reduction, (and) be a source of income for clients with a changing interest rate environment,” Ebeling added.
One poll answer of note regarding this question was the 18% who have never used options ETFs. Investor education in these strategies is imperative. Ebeling and Mouritsen provided clarity on the nuances and complexities of options ETFs during the webinar.
The Active ETF Advantage
Before delving into the strategies, Ebeling noted the advantages of using an active ETF wrapper. These include transparency, cost-effectiveness, tax-efficiency, and active flexibility.
Furthermore, active ETFs continue to gain more market share. As of August 2025, active ETFs brought in $290 billion of inflows. Of note is the number of inflows taken in from Nontraditional Equity funds: $43 billion, which speaks to the growing popularity of options-based strategies. (Source: Bloomberg and Morningstar as of 6/30/25).
There are various reasons for adoption, which include the increasing correlation between stocks and bonds as well as higher volatility. Given the current rate-cutting environment, derivative income strategies can be a source of yield: the average is 7.99% for a 12-month yield, which even beats out emerging market debt (7.54%).
Options-Based Strategies
As mentioned, one of the barriers to entry into this arena of options-based ETFs is education. A poll question cited complexity, transparency, and costs as obstacles. Ultimately, however, 37% of webinar attendants said they were unsure of how to use options-based ETFs. Meanwhile, 29% don’t fully understand how they work.
With that, Fidelity dove into the mechanics of options-based ETFs. These included two primary strategies: hedging to play defense in the markets and buffering. The former is ideal for protecting against the downside (and capturing upside when markets trend higher). Buffering, on the other hand, is ideal for capturing alpha in a choppy market. Lastly, those looking for potential income and diversification can look to options-based ETFs.
“Understanding the differences is really important for investors to understand what they’re getting,” Ebeling stressed.
3 Funds for Options-Based Strategies
Various options-based strategies can work for the aforementioned scenarios, and with that, Fidelity has three funds:
- Fidelity Hedged Equity ETF (FHEQ)
- Fidelity Dynamic Buffered ETF (FBUF)
- Fidelity Yield Enhanced Equity ETF (FYEE)
“If you want protection from a moderate to sharp down market and participation in an up market, the hedged equity is great,” Ebeling said. “If you think the market is doing to be sideways and choppy, the dynamic buffer is great; if you want participation in the markets, some sideways or moderate downside protection, but enhanced yield income for your clients, (then FYEE) is great.”
Mouritsen went into further detail on the strategies of each fund. He highlighted the experience of the funds’ portfolio managers in dealing with these growing options-based strategies. Fidelity is constantly listening to the needs of their clients and responding in tow with ETF products that offer ideal solutions.
“We began our work in options and derivatives in 2012,” Mouritsen said, adding that “As many other firms in the business have done over the last five or so years, we’ve expanded into the alternative space.”
“We want to bring solutions forward to our clients that we think will meet the needs that they have,” Mouritsen added.
Limited 0% Expense Ratio
Lastly, with the first rate cut installed by the U.S. Federal Reserve in September, the timing couldn’t be more auspicious for investors looking to diversify their income with FYEE. The fund typically carries an expense ratio of 28 basis points, but it was announced during the webinar that the fund is offering a 0% expense ratio for only a limited time.
“We currently have a fee waiver that was applied on September 1st,” Ebeling said, noting that it would continue for the next 12 months or up until $250 million is reached in assets under management (AUM). Once those assets are reached, it becomes a blended expense ratio (i.e. if $500 billion AUM is reached, the expense ratio is 14 basis points).
To learn more about options-based ETFs, visit the Fidelity website.
For more news, information, and strategy, visit the ETF Investing Content Hub.
Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
1227529.1.0
