Courtesy of Max Chen
ALPS Portfolio Solutions has launched a new exchange traded fund that provides investors with income through selling put options on the largest U.S. stocks with the highest volatility.
The U.S. Equity High Volatility Put Write Index Fund (NYSEArca: HVPW) tries to reflect the performance of the NYSE Arca U.S. Equity High Volatility Put Write Index, which tracks a portfolio of exchange-traded put options on the largest capitalized stocks that have listed options with the highest volatility, according to ALPS. HVPW has a 0.95% expense ratio.
The ETF will sell 60 day listed put options every two months on 20 stocks. HVPW will also distribute out 1.5% of the ETF’s net assets at the end of each 60 days.
Rich Investment Solutions, LLC is the subadvisor to the ETF, which was launched under the ALPS ETF platform.
Kevin Rich of Rich Investment Solutions in a telephone interview said the ETF sells puts that are 15% “out of the money.” The fund tries to earn income through the options premiums. The ETF should do well when markets are trending higher or sideways, but could underperform in strong rallies and sell-offs. “It’s definitely an income strategy,” Rich explained.
“This is a nice alternative strategy,” said Rich, adding that the ETF is fully transparent and provides daily liquidity.
“No other ETFs do this, and the closed-end and mutual funds that do are more expensive,” he said. “We didn’t invent put writing. We’re just wrapping the strategy into an effective ETF vehicle.”
According to a fact sheet on the fund, investors assume the risk that the selected stocks may close below their strike price. They also “give up the upside on the underlying equities above the income the fund receives from selling the options.”
There are existing exchange products that use a different options strategy known as put-write. These include PowerShares S&P 500 BuyWrite (NYSEArca: PBP), AdvisorShares STAR Global Buy-Write (NYSEArca: VEGA) and iPath CBOE S&P 500 BuyWrite ETN (NYSEArca: BWV). The buy-write, or covered call, strategy utilizes call options on a position to generate high income from option premiums. [Buy-Write ETFs]
For more information on new product launches, visit our new ETFs category.