Structured Outcome ETFs & How They Work

For retirees and risk-averse investors, structured outcome ETFs seek to offer risk management as part of a conservative investment strategy. The theory behind a structured outcome ETF is to provide access to the S&P 500 while limiting both downside losses and upside gains in the market, with particular benefit lying in the mitigation of losses. 

This type of ETF can be complicated and each fund manager approaches it somewhat differently. Like many other structured outcome ETFs on the market, TrueShares’ seeks to buffer against the first 10% of losses when the market has a downturn, over a defined outcome period. TrueShares Structured Outcome ETFs are designed to seek to achieve the investment strategy for investments made on the Initial Investment Day and held until the last day of the Investment Period. TrueShares differs from its competitors in its exposure during market upturns, which are only reduced to about 70-78% of the gains observed by the S&P 500, while others are capped. Because structured outcomes are admittedly complicated, it’s important for us to explain how this works so that investors better understand what, exactly, they’re investing in. 

The TrueShares Structured Outcome ETF is executed through a series of buying and selling stock options at predetermined prices. First, the fund sells what’s called a “put option,” which gives a counterparty the right to sell stock to the fund at a predetermined price for a premium. Put option prices are set below the current market price, so the fund loses less than they would otherwise when prices decline. Meanwhile, the fund buys what’s called a “call option,” which gives the fund the right to buy stocks from a counterparty at a predetermined price at a later date. Call options are typically set at current market value, so the fund gains by buying at the low pre-determined price and selling at the higher market price when prices increase.

The combined outcome of selling puts and buying calls is very similar to just buying stocks, but not identical. For puts, stock prices would have to decrease by a lot (roughly 10%) for the investment to become unprofitable because of the premium it receives for selling the put option. Selling puts therefore allows for the 10% loss buffer. However, the more stock prices decrease, the more profits decrease. Counterparties lose in this scenario, so their only incentive to agree to sell at a below-market price is to do so for a lower premium.

This is where buying calls in a way that limits growth comes in. With lower premiums for the puts comes less cash with which the fund can buy calls. Therefore, the fund is limited to buying fewer call options. Fewer calls means fewer stocks, so the fund benefits proportionally less than it would be able to if it didn’t sell puts for those lower premiums. The upside gains for the TrueShares Structured Outcome ETF is unique compared to similar ETFs on the market in that it is not limited by a set cap in gains. It is more so limited by its slightly reduced purchasing power, disallowing it from fully participating in the market.

Compared to other structured outcome funds, TrueShares’ Structured Outcome ETFs can have a greater upside return potential and are capable of performing well in market upswings because of an uncapped structure. We believe this is appealing to those most interested in managing risk, like retirees and risk-averse investors.

Learn more about TrueShares Structured Outcome ETFs at