Global X Launches 6 Options Based ETFs
On Thursday, Global X launched six ETFs that offer exposure to large cap equities with an eye on risk management.
Global X is widely considered to be a leader in thematic investing, with a lineup of ETFs that includes the likes of the $4.6 billion Global X Lithium & Battery Tech ETF (LIT), the $2.6 billion Global X Robotics & Artificial Intelligence ETF (BOTZ) and the $1.3 billion Global X Cloud Computing ETF (CLOU).
According to Jay Jacobs, head of research and strategy at Global X, these new products are distinct from their Thematic Growth family of ETFs.
The tail risk and collar strategies fall under their Risk Management family of products, while the risk managed income strategies fall into the Income family of products. The six funds are each tied to either the S&P 500 Index or the Nasdaq-100 Index.
All six ETFs will have an expense ratio of 0.60%. The S&P 500-linked funds will trade on the NYSE Arca and their prospectuses can be found here. The Nasdaq-100-linked funds will trade on the Nasdaq and can be found here.
Tail Risk ETFs
The Global X S&P 500 Tail Risk ETF (XTR) tracks the Cboe S&P 500 Tail Risk Index. This index holds the underlying stocks of the S&P 500, applying a protective put strategy. This means the fund will purchase a put that protects against drawdowns in the S&P 500.
The index rebalances on a quarterly basis, buying put options with an exercise price generally at 10% below the prevailing market price of the S&P 500, with the goal of protecting against drawdowns below this level.
The Global X NASDAQ 100 Tail Risk ETF (QTR) tracks the Nasdaq-100 Quarterly Protective Put 90 Index. Similar to XTR, the index rebalances quarterly, and buys put options with an exercise price generally at 10% below the prevailing market price of the Nasdaq-100 Index.
Collar 95-110 ETFs
The Global X S&P 500 Collar 95-110 ETF (XCLR) tracks the Cboe S&P 500 3-Month Collar 95-110 Index. This index holds the underlying stocks of the S&P 500 Index, then applies an options collar strategy that involves buying puts and selling call options.
On a quarterly basis, the index sells call positions with an exercise price that is generally 10% above the prevailing market price of the S&P 500, receiving the premium from these options in exchange for limiting the potential for upside price appreciation. The index also buys put positions that are generally at 5% below the prevailing market.
The Global X NASDAQ 100 Collar 95-110 ETF (QCLR) tracks the Nasdaq-100 Quarterly Collar 95-110 Index. Similar to XCLR, the index rebalances quarterly. The fund will buy put options with an exercise price generally at 5% below the prevailing market price of the Nasdaq-100 Index and sell call options at 10% above the prevailing market price at rebalance.
Risk Managed Income ETFs
The Global X S&P 500 Risk Managed Income ETF (XRMI) will track the Cboe S&P 500 Risk Managed Income Index. This index holds the underlying stocks of the S&P 500 Index, then applies an options collar strategy that involves buying puts and selling call options.
On a monthly basis, the index sells at-the-money call positions, receiving the premium from these options in exchange for limiting the potential for upside price appreciation. The index also buys put positions that are generally at 5% below the prevailing market price of the S&P 500 Index, with the goal of protecting against drawdowns below this level.
The Global X NASDAQ 100 Risk Managed Income ETF (QRMI) will track the Nasdaq-100 Monthly Net Credit Collar 95-100 Index. Similar to XRMI, the index rebalances monthly and sells at-the-money call options on the Nasdaq-100 Index, while buying put options that are generally at 5% below the prevailing market price of the Nasdaq-100 Index.
Comparing Risk Managed and Collar Strategies
Though all four of the collar and risk-managed ETFs will use an options collar strategy on the specified index, there are a few differences between the two flavors.
XRMI and QRMI rebalance on a monthly basis. XCLR and QCLR rebalance on a quarterly basis. The Risk Managed Income ETFs sell at-the-money call options. This means upside will be more limited than in the Collar 95-110 ETFs, in exchange for a generally higher premium received from writing the call option.
Contact Jessica Ferringer at jferringer@etf.com and follow her on Twitter
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