The ETF space is experiencing a renaissance as issuers experiment with everything from ultra-leveraged single-stock funds to options-based buffers for risk-averse clientele.
Horizon Investments is pushing these boundaries even further with the launch of two new options-based strategies that go beyond simple covered call strategies. The company’s two new funds employ options strategies involving both calls and puts, as well as spreads and other options combinations to maximize income potential.
Let’s dive deeper into these funds and why you might want to consider them.
Options ETFs Gain Popularity
Active ETFs only represent about 10% of the overall market, but they account for nearly three-quarters of new launches. Many of these new funds employ options to either generate income or create a buffer against losses — both appealing to retirement-aged investors seeking more income or safety for their portfolios.
While covered call and buffer ETFs have been around for years, Invesco pioneered more advanced options funds in 2024. The Invesco QQQ Income Advantage ETF (QQA), S&P 500 Equal Weight Income Advantage ETF (RSPA), and Invesco MSCI EAFE Income Advantage ETF (EFAA) overlay put and call options onto a passive equity position.
Global X also offers a range of options strategies, including covered calls, tail risk, net debit collar, and risk-managed income funds. These strategies can do everything from offering protection against extreme sell-offs to gaining exposure to stocks in a specific index while selling protective puts and call options to generate income.
The goal is to help retirement-aged investors replace a long stock allocation in a particular space, such as international or tech stocks, with a higher-income alternative. Similarly, buffer ETFs can help reduce downside risk for equity portions of a portfolio, making them more palatable to investors who would prefer not to be overweight in bonds.
Horizons Continues the Trend
Horizons recently launched two new ETFs focused on generating income through more advanced options strategies, including the Horizon Expedition Plus ETF (HBTA) and the Horizon Landmark ETF (BENJ). These funds have a higher 0.85% expense ratio but offer a greater level of active management to achieve key portfolio goals.
The funds select and weigh securities using a flexible approach rather than focusing on a specific benchmark. These decisions factor in growth, value, momentum, quality, size, and volatility to build a portfolio that offers the highest projected return and above-average levels of market risk that are mitigated through diversification.
In addition to an active equity strategy, the fund overlays options on broad-based industries. For instance, the HBTA expects to engage in “put spread” transactions while also leveraging covered calls and selling puts against a long stock position to increase income from the overall portfolio.
Finally, the fund also reserves the right to use spreads, straddles, and collars to further fine-tune their exposure to the underlying stocks and market trends. These strategies go beyond many other options-focused funds, offering more opportunities to profit from market dynamics and increase income while managing risk.
Other Alternatives
These ETFs are sorted by their YTD total return, which ranges from -3.2% to -2.7%. They have AUM between $66M and $2.5B, with expenses running between 0.29% and 0.68%. They are currently yielding between 0.9% and 12.7%.
Alternative Options-based Active ETFs
| Name | Ticker | Type | Actively Managed? | AUM | YTD Total Ret (%) | Yield | Expense |
|---|---|---|---|---|---|---|---|
| Parametric Hedged Equity ETF | PHEQ | ETF | Yes | $66.7M | -2.7% | 2.8% | 0.29% |
| JPMorgan Hedged Equity Laddered Overlay ETF | HELO | ETF | Yes | $2B | -2.8% | 1% | 0.50% |
| iShares Large Cap Deep Buffer ETF | IVVB | ETF | Yes | $138M | -3% | 0.9% | 0.53% |
| NEOS S&P 500® High Income ETF | SPYI | ETF | Yes | $2.46B | -3.2% | 12.7% | 0.68% |
The Bottom Line
Options-based ETF strategies provide investors with flexibility that was previously only available to hedge fund managers. While these funds have higher expenses and unique risk factors, they may be an excellent drop-in replacement for existing equity allocations that generate a higher level of income to support retirement goals.
Horizons and other issuers continue to push the boundaries of these types of funds, following in the footsteps of Invesco and Global X.
