Animal Spirits Podcast - Talk Your Book: Stacker ETFs

Episode Date: October 30, 2020

On today's Talk Your Book we welcomed back Bruce Bond from Innovator Capital Management to talk about the new Stacker ETFs. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain position, and the securities discussed in this podcast.

On today's Animal Spirits Talk Your Book, Ben and I sat down with Bruce Bond, CEO of Innovator Capital Management. We had Bruce back on in March 2019. I think he's one of the first ones that we did. And no spoilers. We'll let him talk about it in the show. But Ben, credit where credit is due? Were we not bullish on this feeling a need for investors?

Yeah, we thought after talking to him, we thought this is going to do. really well in terms of gathering assets because it was such a good story to tell. And it sounds like for all Bruce tells us, it has done really well. Like you and I said, if we could invest in innovator the business, we would. We thought that these were great ideas that there would be a huge appetite from investors because there was such an easy and clean story to tell from advisors to their clients. And not surprisingly, I'm making up a number. 90% of the have come from advisors. It seems like the overwhelming majority of money into this product has been from intermediaries. Right, from advisors. And it makes sense because these are not the

easiest funds to understand for the lay investor. So I think having someone to help guide you in these things is probably recommended. So there's a lot to get into. I don't unpack here. These are not a completely new concept. These are sort of like structured products that have been around in the institutional space forever and ever. But the fact that they're now available to retail is pretty neat, especially in the ETF wrapper. So there's a lot going on in here, a lot of moving parts. We're going to link to there's a page on their website that shows all of the stacker ETFs, all of the buffer ETFs with the remaining cap, the remaining buffer, the remaining downside, all those sort of things. And Bruce said, because we were like, there's a lot

going on here. How do people get educated on this if you need to? You can call them. Anyhow, But what else? By the way, so I've dealt with structured products in the past in my institutional days. And there was so much paperwork required. And the fact that you can now buy these things in an ETF wrapper is pretty crazy for retail investors. The fact that this stuff just keeps evolving. But it's interesting.

So the first one we talked with Bruce, it was about buffer and it was really trying to figure out a way to head to the downside. Sounds like these new ones, these stacker ETFs are more about thinking about the upside potential too. And so they're kind of trying to help you hedge both ways, which back to my point about meltups and meltdowns in the markets, I think it's smart to think about both of those scenarios where we see things do really well or really poorly. There was something that was filled in for me in this conversation with Bruce that I misunderstood

the first time around. I thought that these products, so these different vintages, I thought that they were delisted when expiration comes up and that there were going to be tax implications. Like that was one of the big potential downsides. That's not the case. These get rolled over and rebalanced into a new one. So in other words, if you buy the October one and it expires in October, you're not getting a distribution of cash. You can stay invested. It rebalances and the buffer and the caps reset. Right. It's rebalanced for you. And the reason that they, so the buffer ones are rolled out on a monthly basis, sounds like these other stacker ones are going to be quarterly. And I think actually at the time we interviewed them about the buffers, they were a quarterly basis. And then obviously there was enough interest in the product that they go monthly. And the reason they do monthly is because the caps are set with these new products. You can get in at the ground floor and not have to figure it out on a fly because things will be different depending on where they are within the fund. We've had a lot of these conversations in the past few weeks and months about using options inside of each. ETFs. And it is kind of wild. Doesn't it feel like we're just at the tip of the iceberg here

in terms of what can be possible? There is going to be an explosion of these companies. So we spoke to simplify a few weeks ago. There's going to definitely be more supply to enter the market. So please enjoy our conversation with Bruce Bond. We'll see you at the end. We're joined today by Bruce Bond, CEO of Innovator Capital Management. All right, Bruce, let's get right down to it. We had you back on in March 2019 to talk about the buffer ETFs, which I think were new at the time. And to our credit, Ben and I were both super bullish on this idea in terms of its appeal

to clients and its ability to raise assets. So how have investors taken to this over the last year and a half? Have we been vindicated? You have definitely been vindicated. At the time when I was on, we had started in August and had gone to $340 million since August of 18. So now we're at $340 million, but they were just gaining steam. When I got on here, I'm sure the show helped put them on a lot of people's maps, but we're at really close to $4 billion today. So we've taken in $3.2 billion-ish or something like that since we were on

with you guys. So talk to us a little bit about why this defined outcome is so appealing to investors today. What is it behind the strategy that people seem to like? You know what they like is they like the known. That's what we're finding most. If people like the known outcome, the defined outcome, people feel if you buy the equity market today, you really don't have an idea of what you're going to get out there. You're just, you're hoping the market goes up, mark goes up, you get the market. Mark goes down. You go down with the market. Here, you have the ability of having an understanding of a range of outcomes that you will receive at the end of the year. And you have that understanding. These products let you look forward more than just look back.

You're not just looking back saying what did they do over the last year, 10 years, five years, 15 years, you're actually saying, what do I think the market is going to do over the next year? And if I think it's going to do that, which one of these buffers or stackers, all this stuff we're going to talk about, which one of these are best for me? And so it allows you to look forward and apply your belief what the market could do and what you're comfortable with into the future with a defined outcome with an outcome you know of what you'll get. That's what people love about them.

All right. So we'll get into exactly what the stacker ETFs do in a minute. But just a quick recap, how does this compare with your buffer ETFs, the original launch of your product? We tried to do something similar to the stackers up front and couldn't get that approved with the SEC for different reasons, regulatory hurdles. and you guys know there was this moratorium on leverage, quote-unquote, leverage products in the marketplace. And so that held us up.

And so we just started with the buffers. But so they're very similar to what we're doing. I mean, a lot of the inner workings are, we're using the same tools to apply, but we're giving different types of outcomes for people that have different type of risk appetites. And that's the reason that we think the stackers will be very popular going forward. So, for example, so you have your triple stacker, and it says it seeks to provide the triple upside exposure of SPY, QQQ and IWM, and then downside exposure to the SPY. So talk us through how that actually works inside the ETF. How do you guys build that exposure? Just to start off the level set with everyone, one thing we love about these is you're going to put $1 in and you're going to get a dollar in the spider, you're going to get a dollar in the NASDAQ, and you're going to get a dollar in the Russell.

And if those go up, you're going to get whatever they give you. You're going to have $1 to $3 in those. But on the downside, you just have $1 in the S&P. So if the market goes down, you're going to have exposure to the S&P 500. If the market goes up, you have exposure to each one of these up to a cap. Now, the cap in those, it's the same for the cap is leveled, I should say. So it's like 7% in each one. Think about it that way.

So it's 7% in the S&P, 7% of the NASAC, 7% of the, 7% of the. the Russell. So you have an upside potential, a maximum upside potential of 21%, but you are capped out in each one at seven. So you have to think about, okay, what do I think? Do I want those or what do I think they'll do? So best way to think about it, just to make it really simple, if you have exposure to the S&P and you think the S&P is going to do maybe less than 20% or in the 15% range, and you'd like to add on your SMP exposure, you'd like to add on the NASAC and the Russell, just to get kickers because they don't count against you if they go down. If they go down, it doesn't even matter.

You only have the downside to the S&P. And so they're just kickers for you. If they go up to, guess what? You get those up to a certain level. People are like, why wouldn't I do that? If I'm not increasing risk for myself, why wouldn't I get that additional exposure on the upside to the Russell and the Q's? Or in the double, we just have the double.

We just have the spider and we have the QQQQ. which you get up to 10% in each of those. And so you get a higher cap, which you only have two that you're contending with. All right. So I've got like a million questions. Let's try and keep this somewhat in order. So there's a hard cap at 7% for the triple stackers.

Is that right? That's right. For each underlie. Yeah. And total cap of 21% just to keep the mass simple. So let's say that they each go up 10%. So the S&P, the Russell 2000, the NASDAQ 100, they each go up 10% over a 12-month.

period. You will get a 21% return. Is that accurate? Okay. That's accurate. But that assumes that you invest what at the opening price of the new vintage? Like, how does that work? That's exactly right. So, I mean, it's like the buffers, the same as the buffers guys. After you get away from the first day, all those options start to move around. And so your upside potential and cap adjust as and market moves. And so we recommend to anyone that wants to know, well, if I bought them today, what would I get? We recommend you go to the website, you go to the triple stacker for October, and you say, I think I want the triple stacker, and you click on that. And it will tell you on the chart, okay, I'm going to get X amount of the upside. And your downside is always

to the S&P. So you're going to get a certain amount of the upside. And it will tell you if that's changed or how much it has changed. So talking about the downside risk here, you're obviously building these products using options. Correct? Yes, that's right. And so that's the way that you can essentially offset, especially in the triple one where you're taking the upside risk of the three, but you can have the downside risk because you're matching that upside with some downside protection using options. Yes, the way to think about it. So a simple layout of how the options built the best way to think about it is we have one option that's called a zero strike call. Now, these are all flex options and they're one-year flex options. So when you say you get,

that's after one year. You have to hold it through the end of the outcome period. It may not be one year if you get in and at the middle, but typically people should think about it as a year. So this is what they're worth at the end. That's what I mean about the known outcomes. And there are just really four or five options positions within the package. If you think about it, the zero strike call, it gives you the dividend of the S&P up front. You take that dividend and let's say you buy the upside of the spider. And then, Then you have to sell a call in order to get some more money. That creates the cap and that allows you to buy the other two, the NASDAQ and the Russell on the upside. So you get the S&P up and down. You get the NASDAQ and the Russell in addition to that only on the upside. And then you go from there and you really just use the option's position and selling the cap, selling away your potential for elevated upside in order to get those other two exposures. So you're not actually using leverage.

You're just using options to access more returns. That's exactly right. Think of it like shaping returns. We're shaping the returns. We're saying, look, you're not going to get all the upside. We're going to sell off some of the potential for that upside in just the spider. And by doing that, it's going to allow us to buy exposure in these other two. Yeah, do you hear that?

So just like the buffer ETFs, you're going to be offering these on a monthly basis, correct? So there'll be a new one every month. So what we're starting with the stacker, so with the stacker, we have a triple stacker. We have a double stacker, and we also have a double stacker with a buffer. So you have a 9% buffer on a double the up. I'll have one with cheese, please. Exactly. And pickles, no ketchup.

So now initially, guys, we're going to start offering them quarterly, those three quarterly. And then as we get up to what we think is a material, we see the amount of interest is there, then we're going to go monthly and offer them every single month, just like we did with the buffers. So in the marketing material, which will include all this in the show and So you give three reasons for stackers. One outperformance potential. We covered that. Two, no added downside risk.

Three several potential portfolio applications, which we'll get into. Let's talk about no added downside risk. Bruce, I know that we all know that there is no free lunch. How is this possible? It sounds too good to be true. Well, the big thing to remember is that no downside risk. What we mean by that is that your exposure is to the market, to the S&P 500. And so to clarify the no downside risk, I mean, you have down.

downside risk, but you have this magnified or enhanced upside. And we want people to understand two important things here. First of all, you're not enhancing or magnifying your downside. Your downside is still exposure to the market, to the SMP 500, but you have these enhancements to the upside. The reason we point out is if you think it's just a typical leverage DTF, I mean, you've got enhancement upside and downside, and a lot of people who've gotten really hurt in those. We want investors and advisors primarily to know that your risk profile, if you have exposure to the market, is not going to a change, but your enhancement to the upside does get better. So I guess it's no added, which is really the key here.

So is there a floor, is there a buffer the same way they're off with the buffer? In other words, if the S&P goes down 27 percent, are you getting all the downside? Yeah, just like on a buffer, if you didn't have a buffer, you'd have all the downside. So on these, on the triple and on the double, you have all the downside of the S&P 500, but you have the enhancement on the upside. On the double with the buffer, you get a 9% buffer first on the S&P, and then you get the return of the S&P and of the NASDAQ 100 up to a cap. So to me, there's two obvious potential downsides here. And correct me if I'm wrong. One is you're getting the price here.

You're not getting the difference. Is that right? You're getting a price return. You're getting price return, not dividend return, which, as we know, over time is a significant contributor to total returns. The other potential downside is, let's talk about tax implications of this. So with most index funds, not most, I should say, that's not true. But oftentimes people are buying and they're holding and they're not paying taxes along the way because they're buying and they're holding. So what are the tax implications of a strategy like this?

So these are all one year vintages, correct? But remember, they reset each year. the fund doesn't end. So let's say you bought the triple stacker. You'd hold it for a year. And in a year, it would just reset automatically for you. And you'd get another year of triple stacker and would just keep giving you the triple stacker every year. It doesn't end.

So you don't get out until you sell. Okay. So you're technically rebalancing for people once that time period it up. It just rebalances every year for you. You don't actually get out. Okay. I thought that this was like sort of terminated and then a new one came to. to market. You stay in. And the beauty of that is with the ETF structure, we're able to mitigate the cap gain distribution. So you should get no cap gain distributions in these products, although they do reset on an annual basis.

So can you just talk about that? So again, going back to your, so let's say that each of the indexes, the Russell of the S&P and the NASDAQ, they're each up 10%. So you get a cap of 7% on each. So the indices are all up 10. You're up 21. How? literally does that work? Is that on the last day of expiration, even though I know it's rolled over? How does that practically work? Coming up to expiration, at expiration, we either let them expire in the fund and take the cash or we can do an in-kind create and redeem within the fund before they actually expire, put the new portfolio on, not create a cap gain distribution for shareholders, and continue on for the following year. So we can use the tools available to us in the ETF and many other 40 Act funds, but specifically the ETF to do in-kind transactions in order to mitigate the cap-gain distributions from the funds going forward. So you will grow,

tax-deferred until you actually sell your shares and you have your own personal exposure for each of the individual positions that you own. So this year, it feels like we've lived through seven different market environments. What would you say is like the best case scenario for this? Is it kind of a low return world where you're seeing some enhancement to the upside? What's the best case scenario? Maybe the other side, what would be the worst case scenario for this type of strategy? I think the best case scenario is as you go forward and you have kind of mid-range returns, like you expect 10 to 15 percent returns going forward. That's the best world for these because you're getting that enhancement to the upside. And if you want a buffer

on the downside, you buy the buffer, but you're going to outperform the market. We You know how hard that is, and you're getting exposure to in the triples to small caps as well as the NASDAQ without the risk of owning those. And so it brings a lot of value to investors, I think. So the downside is if the market does more than 20% a year, so the S&P fits up 30%, you're going to miss out on the difference. Yeah, you would have missed out on 9% of the upside. But most people are like, you know, I mean.

I'm fine with that. It's not the worst world. And a lot of people are using like the buffers as an income as a bond replacement. And they're saying, wow, if I get that much, I mean, what kind of opportunity do I have in bonds going forward here? And so they're using it in that kind of a framework on the bond side. Not speaking about the stacker necessarily. So let's talk about this. This is obviously, there's a lot of moving parts here. I mean, this is a fairly sophisticated product, certainly a new idea. With the. buffer ETFs where you saw the $4 billion come in. I would assume that this is driven primarily by advisors and other intermediaries. Is that accurate? Where are the fulls coming from? We are primarily in the RIA channel. That's what we do most of our business. And we are taking our time to educate advisors on these products. We think they're awesome tools for their business, they're great risk management tools. And now with the stackers, they have great alpha tools that they just have never had real access to. They can easily include them in all their portfolios.

And so that is our target. We're really not after the retail at all because they are sophisticated ETFs. And we think advisors should be applying these to their portfolios and recommend them to their clients rather than people go in directly. So getting back into the details of this. So you have the triple and double stacker that could have the downside of the S&P, but you also have your double stacker with a 9% buffer meaning, correct me if I'm wrong, you don't participate in that first 9% of downside. To catch that 9% downside or to miss it, do you give up some on the upside? What's the trade off there with that one? Because that's a little bit more like your other buffer funds too. I mean, so your cap is

just affected because you're buying that buffer. And so your cap is a little lower. So I can get for you guys, you guys can post it later. But if you look at the double buffer versus just the double, you'll see the lower cap. The reason the cap is lower is because you have to finance buffer and that's really what that cost is. You can see it directly there within the ETF. And another important thing I wanted to mention to you guys, you were saying, well, you have to give up the dividend. The dividend is important to the performance of the funds over time. What we have found is some people that does concern them. Some people don't care, some people that concerns them. Well, if you think about it, what is the yield right now on

the S&P, like a point in a half or something like that. So if you did the double with a buffer, it just has to move 75 basis points and you make up the dividend. So, I mean, it's a very small move. So it's different than the buffers where you have this opportunity to, because of the enhancement that's there, to make up the dividend very easily rather than have it be as a big a deal. I actually think one of the underrated things here, too, especially the triple stacker, is that we're talking about these examples where what if they all threw up 7% a year? Obviously, that rarely happens.

And this year we see there's a wide dispersion of the NASDAQ is doing way better than the S&P, which is doing better than the small cap. So I think you get a built-in diversification because guess what, we don't know which one is going to be the best performer each year. So I think that's actually kind of an underrated aspect of this fund, too, that you don't have to guess which one of these markets is going to be the best one each year. And it could be that one of them offsets the other two or two offsets the other one or whatever. Think about next year, guys. Let's say the small caps come roaring back, then they just haven't gotten there. and let's say that the NASDAQ and the S&P are kind of flat. You get the upside of the small cap.

So if they're flat and the small caps up, you get that. But you don't have the exposure to that. I mean, that's what is so intriguing about the products for people. So could you talk about how does the downside offset the upside? In other words, let's say that the S&P and the NASDAQ are both down 5%. And the Russell 2000 is up 7%. What would that be the returns in that scenario? Okay, give me your numbers again.

So the S&P and the NASDAQ are both down five and the Russell's up 10. You're going to make 5% as long as you don't hit your cap on the, so you get capped out. So if we keep our 7%, you get 7% on the Russell, you'd be down 5% on the S&P. That's the only one that matters, so you'd make 2%. The NASDAG doesn't even impact you at all. If the NASDAX's down and the Russell's down, it means nothing. You only participate on the downside with the S&P 500. Right. And so if it's down, then you just compare it to what the other two are up and you net those out, and that's your return.

All right. So obviously, there's a bazillion questions that can be asked in Doug Gooddo. Talk about client education. If an advisor wants to explore one of these products but has a question, what do they do? Do they go to the website? Can they call? Can they call? Is it a fact? Absolutely. Give us a call. Go to the website, Innovatoretfs.com. I think you guys are going to post like the advisor guide or something like that. That's a great tool. It walks through slowly how they work. And I think once you understand it, the great news is we're talking about this, it's new. People think, wow, that's really complicated. The fact is, once you get in and you look at it, you're like, wow, it's pretty straightforward. It's really pretty simple once I understand it. And I can see a lot of uses for this.

And this, too, what we're doing here is not brand new. I mean, it is a little different than what's been done before in structured products. And that structured products, what they would say is we're going to give you triple the upside of the S&P 500. And what we're saying is, no, we're not going to do that. We're going to give you one time on the S&P, one time's on the NASDAQ, and one time on the Russell. So it's different than what they've seen before. But these types of strategies in the structured world have been out there for a very long time. They're time tested. This is not some new approach to investing that we just figured out. It's just new to retail. And it's also new in an ETF. It's never been

available in an ETF. And so we've put it in a format and we're trying to explain it because we do think the outcomes are very valuable to advisors and investors. So to the advisors that you're talking this through with, how are you seeing them use them in a portfolio? Are they using it in an alternatives bucket? Are they using this as an offset to their core stock holdings? Are they taking some away from their bonds for this? How are you seeing that in terms of portfolio construction? That's exactly how they're using it. I mean, I think we're seeing for the stackers, we've seen primarily people take exposure off of kind of their core equity exposure and put it in the stackers to enhance their upside without increasing their exposure to the downside. And then secondly,

on the buffers, straight up on the buffers, we're seeing people sell out of their bond positions because they don't have any hopes for bonds going up here. If you guys think about, think about the election right here, everybody's gone really short term on debt. And I mean, they're basically got cash track is what they've got. They've got no upside potential. that making any money with these, they're just cash. It's just safety. But overall, it hurts performance your portfolio. Let's say Trump wins and the market shoots way up. We don't know what's going to happen. But let's say the market shoots way up. They're in cash. They have missed a big jump in the market. You're not going to have time to necessarily get in there the moment you hear.

Why wouldn't you buy a buffer or buy the double stacker with a buffer? You're going to get the jump in the market. You're going to participate with that, but you have a buffer. If sometimes, goes bad and the market goes down at the election, well, you're buffered against that loss, but you're going to get the potential on the upside, rather than just go really short term with basically a cash position. See, Ben, stop being such a warrior award, just put your cash to work. Ben's been in cash since 2016. You need to buy a buffer, the stacker with the buffer.

That's the one you want, the double stacker. So you're seeing a ton of flows into the product, obviously. Are you seeing any flows out, or are people holding these things? We're not seeing a whole lot of movement. And people tend to get in around the end of the month or early in the buffers, early in the month when the new product is offered. We are seeing some rotation where people, like the market moves up and they feel like they're getting up toward their cap. We'll see them rotate into the next month, lock in their gains and get more upside on a new cap. So we're seeing some movement from that perspective, but we're not seeing stackers on stackers.

We're not seeing them jump out all together. I think the people that are in are like, yeah, we love this. and this is a great tool. And remember, all the other risk management strategies that are out there in a lot of ETS, they require movement within the fund. They require, you're either timing to go to cash or you're moving here to move there. You're going into value, going into growth. They have nothing, none of that here.

You know up front what your buffer is and you know what your potential outcome will be. And you just go with it until you want to make an adjustment. And that's what we love about it. We're buying the same options day after day after day. We're not adjusting what we're buying and how we're buying is very simple. The outcome is known. We tell you what that is and you can feel very comfortable. We've done 40 full cycles now.

We've done this for a while. They're all working as we expected and as prescribed. So people can feel very comfortable in what their potential outcomes will be. What we state they will be is what they will be. And I guess the way to look at the differences, again, maybe I'm looking at this wrong way, but the double and triple stacker without any buffer, those allow you a little more to the upside. Whereas the buffers are more concerned with the downside protections. They're kind of two different sides there of the risk. That's exactly right. I mean, the buffers are for people that really want risk management. They don't want to risk losing a bunch of money. But then we also, for innovator itself, we also want to have a more bullish view on the market. And so these show more of a bullish approach to the market. market. And so we have, you can be a little more bullish. You can be a little more bearish. You can use both of them to attack whatever you're after. Bruce, this is great. Thank you so much for coming on. We'll link to everything that we talked about in the show notes. All right, Ben. So what is the downside?

I mean, what are we missing? So you get the downside of the S&P 500. Okay, you get that anyway with an S&P 500 index. but you get the upside of the S&P plus the Russell plus the NASDAQ. I guess simply put the risk, as far as I understand, is that there's just an absolutely incredible bull market. Like this in the late 90s, you would have been capped at 21%. If the market's doing 25, 30%, then you're going to lag. Meltup is a risk. This is the right tail.

But that's not a meltup. That's an absurd bull market. Well, let's say you bought this thing and you felt a little bit better about yourself and said, I'm going to get a little more leverage. And you bought this thing April. What had been about myself? Is this a personal attack? Let's say you bought this at the end of March, early April. And since then the S&P is up 60%. Okay. So it's the timing of, so that could be a case where you buy after after after you buy after. That's what I'm saying. So if you get to your cap got killed and you think, well, I'm going to put some leverage on it. But then you still miss out of the cap. But no, no, hold on. Hold on. If you buy after, then the caps are always moving. That's what I'm saying. So if you get to your cap, then you could sell out of it and roll into a new fund if you want because what's the point of holding it if stocks are going up and you're missing out now. So I guess that's why again why they have the new products. But that's the thing where you'd be forced into doing something potentially because you hit your upside cap. And then so now you have to come to a new defined outcome from that level. All right. So maybe a little bit more operationally complex than standard.

So maybe you have to, yeah, pay attention a little bit more to these. But to his point about having some ideas about, there's still a range of outcomes here, obviously, but it just shortens the window a little bit, I guess, and it makes it so you just have a little bit of a better idea of what your range is going to be. It's not quite as wide. Here's a scenario. Let's say that the S&P 500 goes down. That's just so you buy it on the vintage day. You buy it at the IPO or whatever. I feel like you could have asked him these kind of questions for like a half hour straight. Let's say you were just throwing out numbers. The S&P's up two and a half. How's this? So the S&P 500 goes down 40%. It's down 40% on the day of expiration, rebalance, whatever. It's down 40%. Okay. So you lose 40%. And then the next year, there's a huge rebound. The market's up 50%, but you're capped out at 21.

Yeah, assuming you did a buy and hold for this. So that could be really bad because that's a real risk. So you get all the downside one year. And then the next year, you're capped so you don't get the full rebound. In that scenario, this could actually be really not good. And again, why you'd have to be a little more active in this strategy and rebalance into a new one if you hit the cap level? So the point is, these things are different. They need to be understood and probably managed a little bit differently than buy and hold. But I am still very bullish on these ideas that there is going to be continued demand for investors for different products.

And I think this fits a bit. And it takes some time to understand. I think we or personally, I thought I had a better understanding of these than I did. After I talked to him, I felt like I understood him a lot more than I did going into it. So it does take some time. I think you got to understand what you're getting yourself into here. All right. Animal Spiritspod at gmail.com.

Thank you very much for listening. Have a great weekend and we'll see you on Wednesday.