Investors can use options to hedge their positions, but it can be a complex affair. As such, three ETFs from Global X employ options in their funds as a built-in risk management component.
Utilizing options can allow an investor to take the inverse of their current position if markets go awry. This is especially the case when it comes to volatility in the S&P 500.
However, Global X has investors covered with three funds. First up is the Global X S&P 500 Tail Risk ETF (XTR), which employs a protective put strategy for investors seeking to buffer against market selloffs by owning the stocks in the S&P 500 Index and buying 10% out-of-the-money put options on the S&P 500 Index.
XTR highlights:
- Growth potential: XTR offers uncapped exposure to the growth potential of the stocks in the S&P 500 Index.
- Manage downside risk: By buying protective puts, XTR seeks to mitigate significant resulting selloffs of greater than approximately -10% to the options’ expiration in three months.
- Efficient options execution: XTR buys put options on the S&P 500, saving investors the time and potential expense of doing so individually.
Two More Options From Global X
Another option to consider is the Global X S&P 500 Collar 95-110 ETF (XCLR). XCLR employs a collar strategy for investors seeking range-bound equity returns.
XCLR seeks to achieve this outcome by owning the stocks in the S&P 500 Index (SPX), while buying 5% out-of-the-money (OTM) put options on SPX and selling 10% OTM call options on the same index.
XCLR highlights:
- Growth potential: XCLR enables investors to participate in the growth of the S&P 500, up to approximately 10% from the selling of the call to the options’ expiration in three months.
- Manage risk: By employing a collar strategy, XCLR aims to lessen drawdowns to approximately -5% from the purchase of the put to the options’ expiration in three months.
- Efficient options execution: XCLR buys put options and sells call options on the S&P 500, saving investors the time and potential expense of doing so individually.
Last but not least is the Global X S&P 500 Risk Managed Income ETF (XRMI). This ETF employs a protective net-credit collar strategy for investors seeking the income characteristics of a covered call fund, while mitigating the risks of a major market selloff with a protective put.
Furthermore, XRMI seeks to achieve this outcome by owning the stocks in the S&P 500 Index (SPX), while buying 5% out-of-the-money put options on SPX and selling at-the-money call options on the same index.
XRMI highlights:
- Alternative income source: XRMI seeks to generate an alternative source of income by selling covered calls.
- Risk-minded approach: XRMI buys protective puts to mitigate the risks of a major market selloff.
- Monthly distributions: XRMI expects to make distributions on a monthly basis.
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