Inside ETFs Is your portfolio ready for the crash

Added: 2026-05-19

[00:00:00]Markets may be heading for turbulence.

[00:00:02]So, is it time to deploy the options airbag?

[00:00:07]This is Inside ETFs and we're talking about option strategies. After a blockbuster earning season, the honeymoon for stocks may be fading fast.

[00:00:15]Wall Street strategists are raising alarms as a harsher macro reality is setting in. Sticky inflation, surging bond yields, and a stretched AIdriven rally. What once felt like an unstoppable market now feels like a slowmoving car crash. So, are options the seat belt that investors desperately need? Well, let's ask Mike Co, strategist at YieldMax ETFs. So, Mike, if the slowmoving crash in equity speeds up, investors will need to get out of the way quickly. Why is volatility the ideal backdrop for your strategy?

[00:00:43]>> We sell volatility. So, if you can imagine that you're an insurance uh, you know, underwriter, one of the things you like to see are higher premiums. And when people get more concerned, they pay more for options because they're a form of insurance on equities. And that means we're getting paid more in terms of premiums. Now, we don't sell it uh you know completely. So, in our strategies, we sell call spreads. So, we look to sell a little bit of premium, but we want to make sure that we're getting some upside participation as well. But one of the things we've seen in this strategy is that it mutes the volatility of our funds when we do this. So we'll probably get somewhere in the mid80s in terms of upside participation when the stocks go up, but it also carries that we also get about uh you know mid to low 80s in terms of participation on the way down. So a lot of our funds actually get uh as much or slightly more upside as a percentage than they get downside uh as a result of selling options premium.

[00:01:39]>> Well, in the current environment, rising bond yields are a threat to equities, especially small caps, consumer stocks, and housing. But you have emphasized the need for strategies that adapt to across volatility regimes. So how do you build for a world where yields stay elevated?

[00:01:52]>> They don't feel particularly elevated in a historical context. From my perspective, if you take a look at the post uh World War II era, so basically, you know, from the 1950s up until 2008, uh a 4% tenure would have been considered actually extremely low in that period. Um you know, I think we what we're possibly returning to is more of a normal rate regime. if I could call it that. I'm not trying to scare people who are hoping that we go back to sub twos, but I just don't think we're going to. I think the the era of ZERP is is comfortably over. I think bank policy makers now recognize that's probably not a good idea.

[00:02:27]>> So last year did show that even volatility installation products can suffer heavy drawdowns in fastmoving markets. So how much downside can options income offset before losses in the underlying overwhelm the premium collected? Well, I mean, obviously in any kind of an options income strategy, the performance of the underlying asset is going to remain critical, right? So, if you have an underlying stock that falls 50%, selling upside options premium against that is going to mute the downside a little bit, but it is not going to offset it entirely. Now, some of our strategies also do buy some protective puts on the downside. So, in our alt fund, for example, we sell some upside calls and call spreads and use that to help finance some downside put purchases. But that's really more disaster protection than it is sort of the slow eb that sometimes takes place when you're suffering through a bare market. I mean, I guess the way we like to look at it is that you're looking at probably something in the neighborhood of about 80% of the volatility in these underlying stocks that you would experience if you own the stocks without doing the options income overlay.

[00:03:27]>> So, when markets flip from fear to complacencies, premium does shrink and income drops even as the price keeps sliding. So, do these strategies still protect or do they just lag plain equity exposure? Well, I mean, I guess you have to look at it on a riskadjusted basis, right? So, you know, if you can you can imagine that if you have an a strategy that gets about 85 to 86% of the upside and has 83% of the downside, you know, in terms of volatility, that you're probably doing better on a riskadjusted basis. And actually, you know, several of our funds have done very very well in terms of keeping up with the underlying asset. You know, one of the biggest names to report this week is Nvidia Invit, which is one of our target uh 25 products on Nvidia, is up about 21.6% total return since its launch, which is lagging the underlying stock by, you know, I think less than 1% at this point. Um, and yet it's only exhibiting about 80% of the volatility. So, if if I could get almost the exact same upside, and I would call 22% upside since, you know, December or so, pretty good. I think anybody would agree that would be a very nice uh attractive rate of return. At about 80% of the volatility, I think we're doing pretty well.

[00:04:36]>> So, Mike, let's finish on those big Nvidia earnings. The key events of the week, they're still pending and sentiment around the data center buildout is stretched. So, what are you seeing in positioning before then? The interesting dynamic to me is that it is conventional to see upside calls trade at a slight discount to downside puts.

[00:04:53]People like to sell upside calls to collect premium. They like to buy puts to protect themselves. And that's the dynamic we currently see in for example the NDX, the NASDAQ index and in ESPX.

[00:05:03]And Nvidia is the largest constituent of both of those. Uh but what's interesting is that if you take a look at the options market expiring at the end of this week for Nvidia, it's actually the upside calls that are trading at a premium to the downside puts. Um so it it seems to me the way I like to characterize that is there might be a little bit of a a fear of missing out component here. In other words, people are thinking, my goodness, this has really been a a quite a rally. They're getting a little bit anxious, but some people cannot help themselves. They have to reach out and buy some of those upside calls just in case they blow the doors off earnings as they have so many times in the past.

[00:05:39]>> That was Mike Co from YieldMax ETFs.

[00:05:41]Don't forget you can watch more videos on Reuters.com.