What is a “protection” ETF?

What is a “protection” ETF?
A protected ETF is an investment in the stock market with a protective collar strategy. It is essentially a structured project where most of the money is invested in the stock market, and then a small amount of money is invested in a put at the current strike price. It is a long ETF with a collar (long put, short call).
By investing in the stock market, the ETF is long the underlying asset. To protect against large losses, the ETF will purchase an out of the money put option to protect the investor. A put option is the right, but not the obligation, to sell at a specific price. So the ETF is securing a price to sell at, this costs money, but offers protection. They will also write an out of the money call option to produce some income, ideally to offset the cost of the put. A call option is the right to purchase an asset at a price. The ETF is selling the right for a buyer to purchase something. So essentially, the ETF secures a selling price to protect investors, which costs money, they generate some money by selling the right for a buyer to purchase the equities at a certain price.
Protection ETFs are also known as buffer ETFS or defined outcome funds. They are an alternative to insurance products like fixed-income annuities.
The Innovator Equity Defined Protection ETF, ticker: TJUL, the first exchange traded fund aiming to provide 100% downside protection, launched in July of 2023. It has a relatively high expense ratio of 0.79%. It is important to note that if the ETF increases in value after launch, any gains will not be protected.
Big upsides help the long term averages much more substantially than people think. The ~10% return the S&P averages is the average of low and high annual returns. You need ~20% bull runs to offset years where the annual return may be negative.
This product may be attractive to people in their 60s that are about to retire.
Works Cited:
https://markets.businessinsider.com/news/etf/buffer-etf-downside-protection-innovator-tjul-stock-losses-insurance-market-2023-7
https://www.investopedia.com/terms/c/collar.asp
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