SoFi launches ‘credit spread’ option income ETF

Nov 21st, 2023 | By | Category: Alternatives / Multi-Asset

SoFi Technologies has launched a new actively managed ETF designed to provide a high level of income that is not tied to conventional sources of yield.

SoFi launches ‘option spread’ income ETF

The ETF seeks to deliver a high level of income that is uncorrelated with traditional sources of yield.

The SoFi Enhanced Yield ETF (THAT US) has been listed on NYSE Arca with an expense ratio of 0.49%.

Investment approach

Sub-advised by ZEGA Financial, the ETF strategically employs an options-based investment strategy by enacting ‘credit spreads’ on major US equity indices such as the S&P 500, Nasdaq 100, and Russell 2000.

Option-based credit spread strategies involve simultaneously buying and selling options of the same type, same index, and expiration date but at different strike prices, aiming for a net credit (the premium received from the sold option exceeds the premium paid for the purchased option).

ZEGA utilizes a proprietary model to determine the most advantageous levels and timing for placing credit spread trades. These trades can be bullish, bearish, or neutral, with the portfolio not heavily reliant on broad stock market movements. The positions are typically out-of-the-money (OTM) credit spreads, aiming for positive returns even when the underlying index is relatively stable.

ZEGA constantly monitors the market and the fund’s option spreads, ready to exit positions early to secure gains and redeploy capital when favourable market opportunities arise.

Additionally, the ETF is backed by a portfolio of short-term US Treasuries that serve as collateral for the option positions while helping to further enhance the fund’s overall yield.

According to SoFi, the strategy may provide uncorrelated, risk-adjusted returns independent of equity and fixed income markets. It offers the potential for higher yields, particularly attractive for investors seeking alternative income sources to diversify and balance their portfolios.

The ETF makes distributions to investors on a monthly basis.

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