Options-selling ETFs have garnered significant interest from investors over the past few years.
Investors have increasingly looked to ETFs using options to enhance performance. particularly as a heightened sensitivity to equity risk has emerged. With uncertainty expected to remain in markets throughout the year, now is still an ideal time to incorporate options-selling strategies in portfolios.
“The risk reduction efforts of options based ETFs can help advisors who question how much further the market can climb higher,” Todd Rosenbluth, head of research at VettaFi, said. “By limiting potential losses through options, they can protect end clients who are more wary of a pullback.”
Parametric is a fund manager with a long history of managing options-based strategies for institutional investors. Parametric’s options-selling strategies were brought to advisors and end clients last October with the launch of the Parametric Equity Premium Income ETF (PAPI) and the Parametric Hedged Equity ETF (PHEQ).
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Under the Hood of Parametric’s Options-Selling ETFs
PAPI seeks to deliver consistent and sustainable monthly income, while participating in most market appreciation. By combining a diversified, dividend-focused equity portfolio with selling call options on the SPDR S&P 500 (SPY), the strategy is expected to generate additional yield in a tax-efficient manner.
PAPI provides exposure to an actively managed portfolio of U.S. companies that have demonstrated high current income.
On the other hand, PHEQ seeks to provide investors with capital appreciation while incorporating downside protection. The option overlay component seeks to reduce portfolio volatility.
PHEQ enables investors to participate in U.S. large-cap equity market performance while seeking to mitigate losses.
PAPI and PHEQ are active, transparent ETFs. Notably, PAPI and PHEQ each charge 29 basis points, making them more cost effective than some options-selling ETF peers.
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