Earnings season can always make for a volatile trading session, but if sell-offs are the byproduct of a frenzied market, then a tail risk ETF like the Nasdaq 100 Tail Risk ETF (QTR) can certainly help.
That’s especially the case when it comes to the Nasdaq 100, where big tech earnings could make for an interesting roller coaster ride. The big question is whether big tech can shrug off headwinds like the semiconductor shortage en route to more strength.
Either way, QTR has investors covered with its hedging strategy that utilizes put options.
Put options are a pricing tool with considerable flexibility for managing price risk,” a Kent State University publishing explained. “The main advantages of a put option are protection against lower prices, limited liability with no margin deposits, and the potential to benefit from higher prices.”
“Futures contracts alone cannot provide this combination of downside price insurance and upside potential,” the Kent State publishing added. “The put provides leverage in obtaining credit, assists in production management decisions, and has a formal set of contract provisions and known procedures for settling disputes. The cost is paid at the time of purchase and basis risk remains until fixed, or the crop is sold. Each option represents a standardized quantity linked to a futures contract, and trades must go through a commodity broker.”
Growth and Risk Mitigation in One ETF
QTR seeks to provide investment results that correspond generally to the price and yield performance of the Nasdaq-100 Quarterly Protective Put 90 Index. The underlying index measures the performance of a risk management strategy that holds the underlying stocks of the NASDAQ 100® Index and applies a protective put strategy (i.e. long (purchased) put options) on the NASDAQ 100® Index.
QTR provides investors with:
- Growth potential: QTR offers uncapped exposure to the growth potential of the stocks in the Nasdaq 100 Index.
- Managed downside risk: By buying protective puts, QTR seeks to mitigate significant sell-offs of greater than approximately -10% from the purchase of the put to the options’ expiration in three months.
- Efficient options execution: QTR buys put options on the Nasdaq 100, saving investors the time and potential expense of doing so individually.
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