Experts perceive a major advantage, but other investors are worried that exchange-traded funds with options overlays would limit returns.
Options, according to Tony Rochte, global head of ETFs at Morgan Stanley, can help mitigate heavy losses by acting as a wager against a fund's equity position.
He stated on CNBC's "ETF Edge" that while they may be limited in their upward potential, they are also limiting their downside protection. The broad-based equities market is seeing an influx of participants as a result of this.
According to Alison Doyle, head of ETP listings at Nasdaq, the risk management method is becoming more popular among investors.
Active ETF launches accounted for more than 75% of all 2023 launches. In the same interview, she also stated that, "in the active ETF space, I think most notably" are portfolios that incorporate options-embedded methods. "When we consider that 75% of the ETFs introduced last year were equity derivative strategies or actively managed equities funds," the author writes. According to Rochte of Morgan Stanley, more and more investors are shifting their capital away from popular fixed-income products and toward riskier investments.
Customers may wish to re-expose their portfolio to risk. They are observing the rise of the stock market. By employing these options-based tactics on the Nasdaq and other exchanges, they aim to withdraw 5% from a money market or CD account.
One popular approach for investors to take advantage of the strength in Big Tech, according to Nasdaq's Doyle, is by purchasing covered call ETFs based on the Nasdaq-100.
"Some managers are licenceing the Nasdaq-100 index to provide that tech exposure with options strategies on top," the author writes.
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