Looking to tap into Tesla Inc. gains while avoiding its white-knuckle volatility? A planned exchange-traded fund wants to do precisely that, just as the Elon Musk-loving retail mob gets tested in the tech market turmoil.
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The Innovator Hedged Tesla ETF (ticker TSLH) will invest 20% of its assets in options tied to the electric-vehicle maker, while the bulk of the rest will be in Treasury bills, according to a Monday filing with the U.S. Securities and Exchange Commission.
The strategy seeks to “provide risk-managed investment exposure” through a derivatives strategy known as call-option spreads, according to the filing from Illinois-based Innovator ETFs. The fund will buy in-the-money calls while selling bullish contracts with a different strike price — meaning it can participate in any Tesla gains, but only up to a limit.
Meanwhile the hefty allocation to Treasury bills is designed to limit “significant losses” in one of the stock market’s highest-fliers. Tesla has famously outperformed the S&P 500 by roughly 15,500% over the past decade, largely fueled by its first-mover advantage in the EV industry and seemingly endless optimism for the company’s growth trajectory.
But with those gains come hair-raising gyrations: While Tesla jumped 50% last year — handily beating a 27% climb by the S&P 500 Index — the rally saw drawdowns of as much as 36%, Bloomberg data show. Now the new year backlash against expensive-looking growth stocks has spurred a 12% decline in the car maker versus a 6% drop in the broader market.
Read the full article here by Katie Greifeld, Advisor Perspectives
