If you like my videos you’ll love our weekly Many Happy Returns podcast. You can listen to the episode I refer to in the video by clicking on the links below: 🎧 Apple Podcasts podcasts.apple.com/gb/podcast/many-happy-returns/id1604785417?i=1000622359029 🎧 Spotify open.spotify.com/episode/6CZ5cR4sN91UdWl52hwiPC?si=c5av-9nwTiy2m3UI15NZLA 🎧Web many-happy-returns.captivate.fm/episode/structured-products
This is an excellent video. I wasn't aware of a product like this and, while I would probably tend to avoid the product, I found the technical explanation of how this works very interesting. Thank you for making such a technical topic understandable.
Good video Ramin. I looked into purchasing one of these ETFs a couple years ago. I didn't like the expense ratio, and market declines don't really bother me enough to do anything about it except for tax loss harvesting and reinvesting the proceeds right away. Since, in this example, let's say that the S&P500 does really well soon after this ETF has reset, and there is a 16% gain. It seems to me that it would be worthwhile to sell at that point, locking in the gain.
Thank you very much - structured products are so much advertised with traditional banks and I was always wondering how they are actually managed (and why so few "real" experts are talking about them). To me, in practice, they sound more like an alternative to low yield bonds or even some forms of cash. Let's say you already know you'll need a certain amount of money at a certain moment. If you then manage to make start and end terms meet your project, the downside protection would come in handy. Compared to other no/very low volatility assets, this kind of product might be quite interesting? Especially given that bond ladders are not that easy to manage (talking for France and Germany, but I imagine also in the UK). Do you have any (backtested) average anualized returns for this or similar products?
If something sounds too complicated it generally has pitfalls that no ones has yet realized , i think this falls into that category. I bet the costs etc would still maje it possible to lose movey.
Two years doesn’t seem enough time, I see this as catering to those that want to dip their toe in the investing water and experience a potential short term up-trend while getting loss protection. What happens if you purchase when the S&P drops below the start point price? do you only gain when/if it lifts over the start price?
You would pay more for it to buy when spy is less than the bottom I guess, odd product really. The way to use it would be simply if you had a 2 year window with cash and let it run maybe.? Idk..
You can only make money once SPY crossed above the starting point. If you were to buy the product below SPY's starting point, the deep ITM option would be in a loss. This loss would be compensated by the put. This offsetting would continue until the starting point, from which the deep ITM would start generating profit and you could start making money.
@@jozkomrkvicka604 what happens if you buy it at starting point +5% and then it drops 3% in price though? I would assume you still take that loss because the starting threshold hasn’t been breached?
Very clear explanation. Thanks. As always, there is no such thing, in finances, as in life, as a 100% guarantee. And, it is structured in such a way that the majority, will lose out. The house always wins.
Options are complex and I can't figure it out right now, but the price of the ETF will fluctuate according to the underlying option prices. Even if the S&P 500 went above the upper payoff limit, the ETF will won't be priced in line with the ultimate payoff at the same S&P 500 level, but priced according to the current market prices of the options, meaning that there would still be upside potential.
If you do this privately yourself, what is stopping you from 'resetting' the contracts after every gain, and having ever increasing gains? If the index drops, your portfolio is still worth the same and can be re-calibrated to options with a lower lower bound benchmark. If the index gains, you can realise the gains and reset to a higher benchmark
you can reset the contracts every time you had a gain, although you need to sell the options at prices that probably offset your gains, plus you need to buy new contracts which will increase your management costs.
Thanks Ramin, you always explain thing so well/clearly. As a result I have recommended your website/TH-cam channel on several other forums. Keep up the informative content, and give Teddy a pat/biscuit from this Teddy :-)
As the fund trades in US dollars, there is also a currency risk for anyone using a different currency to buy it (as is the case with the S&P), but people may not realise this when it is stated that losses are protected.
if the fund achieves its profit cap earlier than the 1 or 2 yr period can you just exit the fund on that day? There would be no more upside potential after that anyway so why not lock in the gains and move to to cash and collect interest after that?
Hi @nastynate4481 I suppose you could but you'd have to know the strike of the options and their expiry dates. If you sell the ETF and buy an S&P 500 tracker you lose your downside protection (although as you suggest you now have exposure to all the upside). I suspect most people just keep the ETF and live with the return consequences (capped upside, limited downside). Thanks, Ramin
the P&L chart at 7’’ does not seem right to me. There is no trading that guarantee a positive return. In this case, the long put premium is the “insurance fee/ costs”. If one buys 100 shares of SPY (there is no strike price of 8 in SPY either, the deepest ITM call for SPY is 100+) and at the expiration date the stock price is at or below 451(long put stike price), there is a loss about 1K (3191-2223 , option multiple is 100). I do not understand why strike price 8 is used as the example. Did I miss anything here? Thanks!
hello Morgan, very convincing and looking always forward to see some new stuf, in order to understand the technical background, if I look at this moment the SPY for 2025, Buy call strike 450 is a debit of 6400 , buy put strike 450 is a debit 2900$ Selling a call strike 465 gives me a credit of 5460 . this adds up with a total of debit 3850 Hence , also notice there is little or no volume, I'm not sure of 30-6-2025 is correct. Can you please elaborate on strike prices, credit/ debit paying/receiving . This is called a synthetic covered call, correct ? Many thanks in advance Ben
Hi @benheynderickx1729 I was wondering who Morgan was... LOL. I give the rough option premia (rough because I don't know what the fund manager paid in reality I had to guess using the Black Scholes formula and guesses about the dividend, risk-free rate and implied volatility). You have to do the calculations based on prices when the fund was issued. Buy deep in-the-money call cost $431 Buy at-the-money put cost $32 Sell upside call gain $22 But as you say it's a synthetic covered call - you own the underlying synthetically with the deep in the money call option and you've sold the upside call. The payoff looks like a 451-526 call spread which is another way to structure the trade (buy the 451 call, sell the 526 call) but I don't think that could be packaged as an ETF. Thanks, Ramin
So does the fund start making a loss when SPY ETF goes above the $525 short call strike price? How are they protected from that unlimited loss potential. It looks like effectively they are just shorting a further OTM upside call option with the hope is SPY never goes beyond that.
Hmm. It could be interesting with leverage. Normally, using leverage on the stock market is scary, but if you can cap your losses, it would limit the devastation of a crash. Probably not the best time to use leverage with this interest rate environment though. Anyway, I think I'll just stick to simple buy and hold. These kinds of instruments are too complicated, and I'm more afraid of making mistakes.
I am a bit confused, @4.19 SPY call option strike of 8.12 = 81.2 SPX, this is sooooo deep in the money, the premium for that would be astronomical . Could this be a typo and the 8.12 refers to $8.12 premium they pay? As if you add the credits for bought and sold, it would work out very expensive.
Thanks for the technical part. It allows us to customize something similar that cater to our needs. Plus won't a massive put buyer / call seller bring the extrinsic prices against the fund?
It would be interesting to know what performance you would have achieved over time with this strategy, simulating it with exactly these conditions (which in reality depend on volatility). If you double in 10 years (i.e. 100% over 5 periods of 2y), you would receive between 16.6% and 100% (minus costs).
I´m not really an option guy, but this seems like a collar option strategy to me. (could be complete wrong) If so, than the strategy must be at break even at the issue date already, which reduces the upside potential even further. Some word to S&P 500 dividends, the payout date is 6 month after the dividend day, which I always found a bit unfair/strange.
Hey, Ramin. Won't they just flood the market with that put, vying for customers, competition driving down the value for put makers?? How many people hold it, and how many have yet to buy the put will become the metric to watch...
Morning Sir I have got a stupid question... if the inflation in the UK is about 7-8/ish% and let`s say I will invest in the S&P500 and I will gain the same/ish 7-8% per year and because of the inflation and the gain on the S&P500 is the same I will not make any money in the future? Sorry I asked something very stupid LOOL Thank you very much for your help....
Thanks for sharing and it's very informative. I use similar strategy to generate income for owning SPY. When my allocation for SPY is high, I'll sell some out of money covered calls. If they are called away, I'll buy some out of money calls and sell some monthly puts to replenish the positions. Occasionally I'll also buy put when premium is cheap to protect against market downturn.
The ones making money here are the ones selling the deep itm call to the fund in bulk at a built in gain to the current price of SPY. Guaranteed profit funded by other peoples' money in the etf. The hidden knife in the back is that this built in cost to buy the option is not included in the expense ratio, just a drag on the performance of the etf. If they're going to advertise 100% guaranteed loss protection, you better believe you're paying for it right off the top
You say that it's much less attractive after it's launch when the S&P might have gone up. But what then is the value at that point? Can you realize your "gains"? Who would pay for it?
With Doomsday products like this, you really need to look into who's the counter party because if enough people buy into the fund then it could look like a small boat with everyone on one side if the market crashes.
It is very difficult to keep the cost of holding three options at zero, as debit of premium from buying ATM PE and IM CE should be higher than credit of premium from short OTM CE, plus no dividend would be received. So probably it is better to buy Investment grade bond ETF than buying this scheme.
A large part of the reason that people buy ETFs is to avoid complexity, ie, just buy the market. Then you actually said, "if this part is too technical, skip it". This product is not really for a beginner, is it. If you do not understand it, do not invest in it. On the one hand, it appeals to the nervous investor, who tends to be newer to the markets. On the other hand, I doubt a lot of people will understand how it works. It is contradictory.
Mmm the devil is in the details and I cannot understand what is the catch with this product. How is it possible to get a sustained guaranteed 8%/year if many back testing simulations show that a safe withdrawal rate cannot be more than 3% to preserve the original capital? Seems another product that times specific short term market conditions but that cannot guarantee to sustain it's strategy and performance over a long time. Anyway would this fund be a valid alternative to a 2 years treasury or 2 year CD? What would be the downside? Less protection to bankruptcy risks?
@miteshhhh potential, as I said you either want to be in the market or shouldn't. I domt see why you would opt for this over a normal wtf, if you think s and p will go up 16% invest into a normal one as ot might go up 20%
I’m sure I will be the minority opinion but this guy left out a whole bunch of things that makes me very disappointed. For instance, he never once said where are you can find out information about this product He never once mentioned that the company that has this product, which is called Innovators, never says to use this product as a replacement for the S&P 500. In fact, they say this might fit a niche of a portion of the bond Part of your portfolio And many other things that makes me very suspect He also didn’t mention about the numerous other buffered ETFs He put this particular one because it has the 100% downside and that makes it a little bit sensationalized. This was like watching an episode of Jim Cramer when he demonizes or sensationalize‘s something so for those reasons and more I was very disappointed because obviously this concept is growing and growing and growing, and certainly has some merit
Hi @missouri6014 the purpose of this channel is to educate investors and I used this single fund to explain the principles of how capital protected ETFs work. I assume once people understand the concept they could go to ETFdb and find other capital protected ETFs. Thanks, Ramin.
This little Frankenstein ETF is likely to require a government bail-out in extreme market drop due to counter-party risk. The bank that signed the short option will be out of cash in major crash - and you can’t get cash from a bankrupt bank. So this ETF becomes a pro-cyclical financial instrument that’s ultimately dependent on Federal welfare. More welfare for Wall St. and another pyrotechnic on the pile :/
UK (London) was supposed to be the financial capital of the world which is a complete joke because it is light years behind the financial hubs of the US in terms of the availability of financial products. UK has also lost much more ground since Brexit.
If you like my videos you’ll love our weekly Many Happy Returns podcast. You can listen to the episode I refer to in the video by clicking on the links below:
🎧 Apple Podcasts podcasts.apple.com/gb/podcast/many-happy-returns/id1604785417?i=1000622359029
🎧 Spotify open.spotify.com/episode/6CZ5cR4sN91UdWl52hwiPC?si=c5av-9nwTiy2m3UI15NZLA
🎧Web many-happy-returns.captivate.fm/episode/structured-products
I like when you say 'you can skip this bit if it's too technical'. You could have said that at the very start of the video for me. 😆
This is an excellent video. I wasn't aware of a product like this and, while I would probably tend to avoid the product, I found the technical explanation of how this works very interesting. Thank you for making such a technical topic understandable.
Glad it was helpful! @AndrewGAlonzi
Good video Ramin. I looked into purchasing one of these ETFs a couple years ago. I didn't like the expense ratio, and market declines don't really bother me enough to do anything about it except for tax loss harvesting and reinvesting the proceeds right away.
Since, in this example, let's say that the S&P500 does really well soon after this ETF has reset, and there is a 16% gain. It seems to me that it would be worthwhile to sell at that point, locking in the gain.
Thank you very much - structured products are so much advertised with traditional banks and I was always wondering how they are actually managed (and why so few "real" experts are talking about them). To me, in practice, they sound more like an alternative to low yield bonds or even some forms of cash. Let's say you already know you'll need a certain amount of money at a certain moment. If you then manage to make start and end terms meet your project, the downside protection would come in handy. Compared to other no/very low volatility assets, this kind of product might be quite interesting? Especially given that bond ladders are not that easy to manage (talking for France and Germany, but I imagine also in the UK). Do you have any (backtested) average anualized returns for this or similar products?
If something sounds too complicated it generally has pitfalls that no ones has yet realized , i think this falls into that category.
I bet the costs etc would still maje it possible to lose movey.
Two years doesn’t seem enough time, I see this as catering to those that want to dip their toe in the investing water and experience a potential short term up-trend while getting loss protection.
What happens if you purchase when the S&P drops below the start point price? do you only gain when/if it lifts over the start price?
You would pay more for it to buy when spy is less than the bottom I guess, odd product really.
The way to use it would be simply if you had a 2 year window with cash and let it run maybe.?
Idk..
You can only make money once SPY crossed above the starting point.
If you were to buy the product below SPY's starting point, the deep ITM option would be in a loss. This loss would be compensated by the put. This offsetting would continue until the starting point, from which the deep ITM would start generating profit and you could start making money.
@@jozkomrkvicka604 what happens if you buy it at starting point +5% and then it drops 3% in price though? I would assume you still take that loss because the starting threshold hasn’t been breached?
Very clear explanation. Thanks.
As always, there is no such thing, in finances, as in life, as a 100% guarantee. And, it is structured in such a way that the majority, will lose out.
The house always wins.
Options are complex and I can't figure it out right now, but the price of the ETF will fluctuate according to the underlying option prices. Even if the S&P 500 went above the upper payoff limit, the ETF will won't be priced in line with the ultimate payoff at the same S&P 500 level, but priced according to the current market prices of the options, meaning that there would still be upside potential.
If you do this privately yourself, what is stopping you from 'resetting' the contracts after every gain, and having ever increasing gains? If the index drops, your portfolio is still worth the same and can be re-calibrated to options with a lower lower bound benchmark. If the index gains, you can realise the gains and reset to a higher benchmark
you can reset the contracts every time you had a gain, although you need to sell the options at prices that probably offset your gains, plus you need to buy new contracts which will increase your management costs.
Thanks Ramin, you always explain thing so well/clearly. As a result I have recommended your website/TH-cam channel on several other forums.
Keep up the informative content, and give Teddy a pat/biscuit from this Teddy :-)
Thanks for sharing! @teddyb4957
As the fund trades in US dollars, there is also a currency risk for anyone using a different currency to buy it (as is the case with the S&P), but people may not realise this when it is stated that losses are protected.
if the fund achieves its profit cap earlier than the 1 or 2 yr period can you just exit the fund on that day? There would be no more upside potential after that anyway so why not lock in the gains and move to to cash and collect interest after that?
Hi @nastynate4481 I suppose you could but you'd have to know the strike of the options and their expiry dates. If you sell the ETF and buy an S&P 500 tracker you lose your downside protection (although as you suggest you now have exposure to all the upside). I suspect most people just keep the ETF and live with the return consequences (capped upside, limited downside). Thanks, Ramin
Great explanation, thanks for sharing
Glad it was helpful @soundslight7754
the P&L chart at 7’’ does not seem right to me. There is no trading that guarantee a positive return. In this case, the long put premium is the “insurance fee/ costs”. If one buys 100 shares of SPY (there is no strike price of 8 in SPY either, the deepest ITM call for SPY is 100+) and at the expiration date the stock price is at or below 451(long put stike price), there is a loss about 1K (3191-2223 , option multiple is 100). I do not understand why strike price 8 is used as the example. Did I miss anything here? Thanks!
hello Morgan, very convincing and looking always forward to see some new stuf, in order to understand the technical background,
if I look at this moment the SPY for 2025,
Buy call strike 450 is a debit of 6400 ,
buy put strike 450 is a debit 2900$
Selling a call strike 465 gives me a credit of 5460 .
this adds up with a total of debit 3850
Hence , also notice there is little or no volume, I'm not sure of 30-6-2025 is correct.
Can you please elaborate on strike prices, credit/ debit paying/receiving .
This is called a synthetic covered call, correct ?
Many thanks in advance Ben
Ramin not Morgan , excuse me
Hi @benheynderickx1729 I was wondering who Morgan was... LOL. I give the rough option premia (rough because I don't know what the fund manager paid in reality I had to guess using the Black Scholes formula and guesses about the dividend, risk-free rate and implied volatility). You have to do the calculations based on prices when the fund was issued.
Buy deep in-the-money call cost $431
Buy at-the-money put cost $32
Sell upside call gain $22
But as you say it's a synthetic covered call - you own the underlying synthetically with the deep in the money call option and you've sold the upside call. The payoff looks like a 451-526 call spread which is another way to structure the trade (buy the 451 call, sell the 526 call) but I don't think that could be packaged as an ETF.
Thanks, Ramin
So does the fund start making a loss when SPY ETF goes above the $525 short call strike price? How are they protected from that unlimited loss potential. It looks like effectively they are just shorting a further OTM upside call option with the hope is SPY never goes beyond that.
Hmm. It could be interesting with leverage. Normally, using leverage on the stock market is scary, but if you can cap your losses, it would limit the devastation of a crash. Probably not the best time to use leverage with this interest rate environment though.
Anyway, I think I'll just stick to simple buy and hold. These kinds of instruments are too complicated, and I'm more afraid of making mistakes.
I am a bit confused, @4.19 SPY call option strike of 8.12 = 81.2 SPX, this is sooooo deep in the money, the premium for that would be astronomical . Could this be a typo and the 8.12 refers to $8.12 premium they pay? As if you add the credits for bought and sold, it would work out very expensive.
I'm also confused , thanks
So if it resets every two years and capped at 16% upside, does it mean 16% per year for two years, or 8% per year over two years for 16% max total?
Sounds like 16% total is the best it would do but fees and actual performance would no doubt reduce that.
Thanks for the technical part. It allows us to customize something similar that cater to our needs. Plus won't a massive put buyer / call seller bring the extrinsic prices against the fund?
It would be interesting to know what performance you would have achieved over time with this strategy, simulating it with exactly these conditions (which in reality depend on volatility). If you double in 10 years (i.e. 100% over 5 periods of 2y), you would receive between 16.6% and 100% (minus costs).
Is this similar to a fixed indexed annuity only with better liquidity?
ROFLMAO that shot of the girl getting beat by the S&P500 LOL 🤣😂
I´m not really an option guy, but this seems like a collar option strategy to me. (could be complete wrong) If so, than the strategy must be at break even at the issue date already, which reduces the upside potential even further. Some word to S&P 500 dividends, the payout date is 6 month after the dividend day, which I always found a bit unfair/strange.
Excellent! Thank you
Glad it was helpful! @stevem6259
Hey, Ramin. Won't they just flood the market with that put, vying for customers, competition driving down the value for put makers?? How many people hold it, and how many have yet to buy the put will become the metric to watch...
Should've stated up front not available in Europe. Has Pensioncraft gone offshore?
Morning Sir I have got a stupid question... if the inflation in the UK is about 7-8/ish% and let`s say I will invest in the S&P500 and I will gain the same/ish 7-8% per year and because of the inflation and the gain on the S&P500 is the same I will not make any money in the future? Sorry I asked something very stupid LOOL
Thank you very much for your help....
Am I missing something? It looks like its net asset value is less than its cost, which means I have no incentive to make this product and then sell it
It's a fully-hedged Poor Man's Covered Call on the SPY
Thanks for sharing and it's very informative. I use similar strategy to generate income for owning SPY. When my allocation for SPY is high, I'll sell some out of money covered calls. If they are called away, I'll buy some out of money calls and sell some monthly puts to replenish the positions. Occasionally I'll also buy put when premium is cheap to protect against market downturn.
The ones making money here are the ones selling the deep itm call to the fund in bulk at a built in gain to the current price of SPY. Guaranteed profit funded by other peoples' money in the etf. The hidden knife in the back is that this built in cost to buy the option is not included in the expense ratio, just a drag on the performance of the etf.
If they're going to advertise 100% guaranteed loss protection, you better believe you're paying for it right off the top
Haha, love the scared chick....so scary! 😂
Thanks @oldhickory42
options inside an ETF, im shocked its taken them this long to come up with this...
You say that it's much less attractive after it's launch when the S&P might have gone up. But what then is the value at that point? Can you realize your "gains"? Who would pay for it?
The idea is to hold it for the entire fixed term
With Doomsday products like this, you really need to look into who's the counter party because if enough people buy into the fund then it could look like a small boat with everyone on one side if the market crashes.
IVVM, IVVB?
It is very difficult to keep the cost of holding three options at zero, as debit of premium from buying ATM PE and IM CE should be higher than credit of premium from short OTM CE, plus no dividend would be received. So probably it is better to buy Investment grade bond ETF than buying this scheme.
A large part of the reason that people buy ETFs is to avoid complexity, ie, just buy the market.
Then you actually said, "if this part is too technical, skip it". This product is not really for a beginner, is it. If you do not understand it, do not invest in it.
On the one hand, it appeals to the nervous investor, who tends to be newer to the markets. On the other hand, I doubt a lot of people will understand how it works. It is contradictory.
Mmm the devil is in the details and I cannot understand what is the catch with this product. How is it possible to get a sustained guaranteed 8%/year if many back testing simulations show that a safe withdrawal rate cannot be more than 3% to preserve the original capital? Seems another product that times specific short term market conditions but that cannot guarantee to sustain it's strategy and performance over a long time. Anyway would this fund be a valid alternative to a 2 years treasury or 2 year CD? What would be the downside? Less protection to bankruptcy risks?
Didn't precipice bonds teach us to avoid expensive, complex, structured products?
Sounds like it won't grow much. I don't understand the point of them like just get a normal etf
@jimbojimbo6873 if your that worried then the stock market is not for you
@@Goady1000 exactly so this is a perfect product for those that don't want to lose money
@@emjay11279 no might as well get a fixed saver
@@Goady1000 5 6 pc compared to potential 16pc
@miteshhhh potential, as I said you either want to be in the market or shouldn't. I domt see why you would opt for this over a normal wtf, if you think s and p will go up 16% invest into a normal one as ot might go up 20%
Not on trade212
Buying the illusion of protection again. Loss-protected stock ETFs will simply lower your long-term gains.
I’m sure I will be the minority opinion but this guy left out a whole bunch of things that makes me very disappointed.
For instance, he never once said where are you can find out information about this product
He never once mentioned that the company that has this product, which is called Innovators, never says to use this product as a replacement for the S&P 500.
In fact, they say this might fit a niche of a portion of the bond
Part of your portfolio
And many other things that makes me very suspect
He also didn’t mention about the numerous other buffered ETFs
He put this particular one because it has the 100% downside and that makes it a little bit sensationalized.
This was like watching an episode of Jim Cramer when he demonizes or sensationalize‘s something so for those reasons and more I was very disappointed because obviously this concept is growing and growing and growing, and certainly has some merit
Hi @missouri6014 the purpose of this channel is to educate investors and I used this single fund to explain the principles of how capital protected ETFs work. I assume once people understand the concept they could go to ETFdb and find other capital protected ETFs. Thanks, Ramin.
❤❤
This little Frankenstein ETF is likely to require a government bail-out in extreme market drop due to counter-party risk. The bank that signed the short option will be out of cash in major crash - and you can’t get cash from a bankrupt bank. So this ETF becomes a pro-cyclical financial instrument that’s ultimately dependent on Federal welfare. More welfare for Wall St. and another pyrotechnic on the pile :/
Useless product , the only one who benefit from this product is the issuer.
UK (London) was supposed to be the financial capital of the world which is a complete joke because it is light years behind the financial hubs of the US in terms of the availability of financial products. UK has also lost much more ground since Brexit.
dividends
First.
This is not 2010 mate
@@JayToor89no need to be jelly "mate". Just be quicker next time.