While options overlays may cap potential upside for ETF investors, experts see a major risk management benefit.
While some investors are concerned that exchange-traded funds with options overlays could limit returns, experts see a key benefit at play.
Morgan Stanley’s global head of ETFs Tony Rochte suggests that hedging strategies like options — serving as a bet against a fund’s equity position — also protect against significant losses.
« They might be capped on the upside, but they’re certainly capping their downside protection as well, » he told CNBC’s « ETF Edge. » « This is really getting people off the sidelines, back into the broad-based equity market.
