Animal Spirits Podcast - Talk Your Book: Structured Notes in an ETF

Episode Date: January 19, 2026

On this episode of Animal Spirits: Talk Your Book, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠��⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ben Carlson⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ are joined by Jeff Schwarte from Simplify ETFs to discuss: barrier options, how structured products work in an ETF, creating regular income and how equity income funds can fit into a portfolio. Find complete show notes on our blogs... Ben Carlson’s ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠A Wealth of Common Sense⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Michael Batnick’s ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Irrelevant Investor⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Feel free to shoot us an email at ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠[e-mail]⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ with any feedback, questions, recommendations, or ideas for future topics of conversation. Check out the latest in financial blogger fashion at The Compound shop: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://idontshop.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits Talk Your Book is brought to you by Simplify ETS. Go to simplify.us to learn more about their whole suite of equity income ETFs at simplify. com. 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. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Redholz wealth management. This podcast is for informational purposes only and should not be readd be. relied upon for any investment decisions. Clients of Bridholz wealth management may maintain positions

in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Today we talked to Jeff Schwarty from Simplify EPS. We've talked to Paul Kim, the founder of Simplify a number of times in the past, pretty much right from when they kind of found it, which I believe was like in the pandemic. And they've always tried to do things a little differently. Like very interesting, options-based, alternative, and they have this whole group of barrier ETS. So there's a simplified barrier income ETF. They have this target 15, which targets a 15% distribution. They have a target 25, and they use options and structured notes to create these strategies. And honestly, I'm kind of skeptical a lot of these high distribution yield products, because a lot of times

they're just returning to your capital to you. And like the actual end return to the, to the user or the investor is not as great as it seems. So I went into this talk a little skeptical. And I didn't realize how much, like, structured products these are. These are more like structured notes within an ETF. I did not understand that. And totally redeemed yourself. Yeah. So it's interesting how far we've come. It does seem like every year, you made the point. I mean, factory ETFs used to be the big thing, right? Like, that's all we had is we had index funds and kind of factory ETFs. And that was it. It wasn't anything very excited. Now it seems like every six months, there's a new form of something coming into the ETF space and seeing

structured note products within ETFs is something new. Let me take it because you've got a mouthful of something. Great podcasting. Atomami beans. Well, you were cooking. You know, you were on a wall. You said you've been gaining too much weight lately and you haven't been happy with the scale, so you're eating healthier.

So here's our talk with Jeff Shorty from Simplify ETFs. Jeff, welcome to the show. Great to be here, Michael and Ben. 20, if we rewind the clock a little bit, like ETF land was kind of, Kind of boring for a few years. It was nothing but flows into products that cost three basis points. It was just like, I don't know, that persisted for a while. And then there was like this Cambrian explosion of new ideas, new products.

And we're excited to talk to you today about one of them. And a lot of the activity that we've seen, of course, like money is still flowing to the, you know, the four basis point product. But a lot of the flows that we saw last year were to like different sort of different strategies, which is exciting. So what you guys are doing at Simplify, you have something new. It's called an auto call. It's new to me. It's called an autocallible barrier income strategy. Does it exactly roll off the tongue.

But let's start high and then we'll zoom in. What in the world is an auto callable barrier income strategy? Yeah, Michael, as you pointed out, ETFs for a long time in my 35-year career of this industry, they start off as just being ways to get exposure to the market in an efficient, low-cost manner. And then you had the explosion of innovation with factor-based investing. And then what you've seen in the last couple of years, if you've got more active managers bringing anomalies in the form of ETFs. So really, that mouthful of auto callability really comes down to these are structured notes

that have been around for a long time. This is a $450 billion market with structured notes. What Simplify has done is taken that experience of negotiating an individual structure note contract with an investment bank. We've put it together in an ETF. in the form of a structure note of structure notes. For example, S-Barr has 40 individual structure notes with laddered maturities

and allows investors to efficiently in a liquid wrapper, just like any other ETF, with constant liquidity, you can take your exposure. And if you have an event where you need the capital, you can take it out for whatever your needs are. So how does the barrier option work? I'm not really familiar with those. Yeah.

So, Ben, what we're doing is, let's say you were to give me $10 million today, January 1, I would take the $10 million and I'd buy treasury, short-term treasury bonds for the collateral. And then I would go out to an investment bank, some of what other advisors are doing with structure notes. I'd call out to an investment bank and I'd say, look, I need to sell you a $10 million notion amount of a barrier option. So when I'm selling the option, I'm getting a premium in. So the income that we're distributing from these products is treasury income as well as the

premium from selling options. Within that option contract, you have several terms that are of note. number one is the maturity date. All of our position is going to be one year out. So at the end of the contract period, that's the date that's called European knock-in that matters the most, whether you participate in the drawdown or not. The second thing that you want to keep in mind is the non-call period. So again, these are structured notes. Non-call period typically is three months.

After three months, if the underlying reference indices are greater than the initial value, that position gets called. Now, the super cool part about the auto call feature is you're receiving an annualized premium at the beginning of contract. January 1, $10 million I get a premium in, typically about 4%. If after the non-call period expires, if those indices are up, I get to keep that entire premium and stack that initial premium with the second called position and to keep return stacking that premium income over time. And so we all know equities go up more than they go down. we would expect about two or three percent or two or three times a year these positions to be called and investors can generate that income from the treasuries as well as the very auction income. Does that answer your question, Ben?

Yes. I think what I want to cut through it. Yes. I think Ben just lied. That was a polite lie. That was a midwestern lie. So let's cut through the technical and like, so what is the objective of this strategy? Like what exposure are you trying to mimic or what are you trying to protect or what are you trying to get out of the fund? Yeah, so investors are thirsty for income. So you get a double digit yield. That's number one. Number two, it's a diverse source of income. Essentially, what we're doing is selling risk in the form of premium to a third party in event equities have a major drawdown. They would have a claim against the portfolio. Now, it's called a barrier. It's called a strike price. It's typically 30%. So if one of the equity indices goes below 30%, then that fund would have that participant. in the drawdown. If the underlying index is down 29%, there's no participation in the drawdown. So it has an element of downside protection, if you will, as well as that income. So you get income, you get protection. There's no counterparty risk. And to me, it's a unique source of income.

It's similar to selling auto insurance. You only have to pay out a claim if there's an experience of an event. In our case, we're underwriting the risk that equities do not go down more than 30% over one-year time grade. So the difference between a 25% loss in the stock market and a 35% loss could be a much different experience for the investor, correct? Oh, absolutely, yeah. If there's a 25% equity drawdown,

there is no drawdown in that individual contract because you didn't break the barrier. But once you go through the barrier, you fully participate in the drawdown. However, you get to offset that drawdown with the income that you receive from the product. But the alternative is, okay, down 35, and this is when you're, I guess what I don't understand about the option part is, because the S&P fell 34, 35% in the COVID crash, right?

Correct, correct. But then it recovered very quickly. So you would have taken part in that drawdown, but the recovery happened so fast that it's like it obviously stayed there. So you just kind of rode the volatility of the market in that situation or only that last 5% or whatever. Well, here's the deal. So we're laddering option positions in the portfolio. That simply means every Friday we have something maturing. So we're trying to get to 52 positions in the portfolio.

So every Friday you have something expiring, right? Now, remember COVID 2020, market was down 35% over a four to five week time period. And then a rebounded significantly over a six to eight week period. Remember, every time we write a contract when the market's down, if after the non-call period, the values are above the initial value, it gets called, right? So on the way back and the rebound, all the physicians were getting called and we were able to stack those returns. Now, on the way down, you did participate because like any other instrument, you're going to have mark to market losses as that COVID selloff was occurring. But remember, it's only when you break the barrier on the last day of the contract.

It's called the European knock-in contract. So that's the only day that matters. You can have unrealized losses throughout the year. But at expiration, you're down 28%. Your participation is zero. If you're down 32%, you're down 32%. Again, these are structured notes, just like hundreds of advisors have been using

for a very long time period. What we've done is we've really put it in an ETF wrapper to help with the operational inefficiencies because advisors have to monitor every single position. Is it being called? Have we anniversary to maturity? Do you have to roll the individual contracts? So we're taking that operational burden away from them,

plus we're giving them continuous liquidity, which means if they, well, in the event that, you know, let's say an investor buys a five-year structure note, that capital is tied up for five years. But if Michael, you decide you want to buy a boat next year, you can liquidate the ETF just like any other ETF and you can go buy your boat. So I love the idea of removing some of the operational inefficiencies and the frictions because structure notes, not a new idea, a good idea. Like you're able to define your risk, but they're pain in the ass.

You have to monitor them. They're difficult to scale you with their client base. So I love the idea of doing that. getting back to like the okay how does this work so there is a new there is a new there is a new there is an a contract that is maturing every Friday so does that mean that if the market were in a drawdown of more than 30% for the course of a year each one of those would get knocked in so like as each one gets called do you have like another stair step lower on the return of that day of maturity like talk through the mechanics

of this because I think this is where the rubber meets the road, right? Like the idea sounds great. I think I understand, but I don't really understand until I experience it and then it's too late. So for advisors that are listening that love the idea, but just want to understand how it goes wrong, right? The upside is great. Who cares?

But if there's a bare market that persists and we're down 35% with no recovery for a year, what does that look like? Yeah. So if you look back historically the last 35 years with weekly maturities on a one-year basis. If you look at the three indices that we use, NASDAQ Russell and S&P, we look at the worst performing of those three. So again, it's a worst of concept, NASDAQ SMP Russell, 2000. Historically, for the last 35 years, you broke the barrier at expiration 7.8% of the time. Okay. So what that means is 92% of the time, you're selling a contract collecting a premium

distributing to your investors, and only 7% of the time did you actually have one of those contracts break the barrier and participate in that drawdown. And most of that was concentrated in the global financial crisis, which you would expect, right? We had a very difficult market. We had fourth quarter was down over 20%. First quarter was down over 25%. So you would experience losses in the portfolio, but you have a 92% chance historically, empirically, that you don't break the barrier and you keep the capital. Now, in 2022, we talked about that a moment ago. So, 2022, the market was off, say, 20%. But the first week of January of 2022 was one week of January

2022 plus 51 weeks from the prior year. Remember, it's a rolling 12-month cycle. So again, you have to, for the fund to experience a complete drawdown of over 30%, every single Friday, you have to have a return on a rolling basis of down over 30% to participate. Again, if you ladder the- All right, so wait, so you were up? So you were up 10% of 2020.

Correct. What? Or let's for one. Okay. So at the worst of 2022, I can't remember when the market bottom. I think it was November actually. Or forget, forget 2020. In a year like 2020, where the market goes down 35% in three weeks, I would imagine that

there's mark to market losses. Correct. Like, what does the year like that look like? So we were down about 27% on the mark to market basis during that initial. sell off. Okay. So that was an aggregate. That's, you know, looking at 52 positions in the portfolio. Again, this is a simulation, not an actual portfolio, but it's a simulation. But you did have that mark to market drawdown. But when when you held the contracts to maturity, so the January contracts experienced the mark to market through March, but then when COVID rebound,

the market was already rebound, by the end of the year, you're still down about 18. That initial contract did not break the barrier because it didn't close below 30%. So the mental gymnastics Yeah, the mental gymnastics is complicated. Yeah. So what we're trying to highlight is there's, you know, double-digit yield. You get paid for taking these risks. You're underwriting equity drawdowns. If the drawdowns don't occur, you keep the premium and you get the dividend.

If you do happen to experience a drawdown, we've dilated the position. So one position doesn't dominate the entire portfolio. And empirically, it happens about 8% of the time historically. So Michael and I have been really stressed testing you on the downside here, obviously. But we know, I'm not done with the downside. Oh, okay. All right. Hit him again.

I want to hear about the upside. No, so do I. I know, and I'm almost on with the downside. All right. So as an investor thinks about the benefit of a strategy like this, this is clearly, in my opinion, not a fixed income substitute. Would you agree, Jeff? You know, we get that question a lot, Michael. It kind of feels to me like a preferred security where you're going to get a coupon payment.

and it has an income feature, which feels like income, but the drivers are going to be equity volatility and equity drawdowns. That's the drivers of the returns, right? So you're going to get the premium from the option market, which is driven by three equity indices, but you're going to get a coupon. So it feels like a preferred security to me, and I would categorize it as an alternative income-oriented solution

where you're going to get the income. A lot of investors want income, but you want some level of protection. Buffer funds are very, very popular, but there's no income associated with it. And so to me, it kind of feels like an alternative income solution, which represents what simplifies all about, liquid alternatives. Yeah, it's like, it's like a middle ground.

So my question to you, before we get to the upside stuff, is so you're talking about putting structured note like products in an ETF, how did we get to the point where you're able to do this? Yeah, that's awesome. This obviously isn't something that investors were able to access before. You had to go through an insurance broker and buy a structured note and fill out all this paperwork, and it was highly illiquid and the fees were high and kind of hit it. So how did we get to the point where you're now able to do this in an ETF?

Well, Simplify is known for being a liquid alternative provider. And we have ISDAs, which allow us to negotiate these individual contracts on the behalf of our investors. So most of our strategies do have some form of derivative futures options swaps embedded with them. So it fit right into our ecosystem and our DNA. So we will go out and work with the same counterparties that advisors do, but we have scale with about $12,000 in assets under management. We have the ability to negotiate these individual contracts. We get quotes for multiple brokers a day. And essentially, we're taking that operational burden from the advisor compliance departments like what we're doing because it's just like a regular ETF.

But we didn't invent the structure note concept. We just made it more operationally efficient. And it's better to have one or two or three guys looking at calls versus 40 analysts or 40 advisors monitoring thousands of individual positions for callability. So again, we just took a concept that was already out there, time tested, very well used by lots of advisors. And we just made it more efficient. All right. Love it. So now let's talk about the upsides.

So people are using this product because there is equity like volatility in a steep air market. the upside is what exactly? Why? Let's talk about the good stuff. Yeah. So the upside is generally going to be limited to the option premium plus the treasury income. That's going to be your maximum upside because you're writing, you're getting capital in the portfolio.

We're going to buy treasury. So that's going to give you somewhat of a yield. And then we're going to sell a bare option to an investor or an investment bank. And that premium that you get, that's what gets distributed investors. So if you're super bullish on the market, I would say this is probably not the product for you. The way I think about it is any return distribution 10% or less, you're always going to outperform because that's kind of the S-Bars distribution yield is going to be between 9 and 11%. We've been distributing almost 13 because we've had a heightened ball environment.

So best case scenario is you have equity markets at rise where a lot of the positions get called so you can stack that income. and then the volatility creates higher yields from the option contracts that you're selling. So you can have, like, for example, S-Bar, we would say 10% is a distribution yield, XV, Roman numeral 15, we're targeting a 15% distribution yield, and XXV we're targeting a 25% distribution yield. The way we get to 25 is we do individual stocks. Instead of writing on three broad-based baskets of indices,

we're doing about 14 individual stocks. the names that you would probably recognize. And the downside protection is, is at that same level? Is it still 30%? Because I would have assumed that you're doing it similarly, but you're taking more risk so the barrier is not 30, it's 20. What does it look like with the individual stocks? Do you get in pages because obviously they're more volatile?

Yeah. So S-Barr is always going to have a 30% barrier. I would consider that a core position in anybody's portfolio. Every single option is going to be 30. And then whatever income you get, you get, right? Whereas XV, we're averaging a barrier of 25%. and that's allowing us to get 15% distribution yields. So, yeah, you've lowered the barrier.

You're taking more risk. You're taking on. You get more income for that. And then in the case of XXV, with stocks like Nvidia or micro strategies, the barriers are typically around 50%, 40 to 50% for those individual stocks. So that's the challenge is finding the right levers to pull on to achieve the income that you're looking for. So you vary the barrier level or the strike price.

In the case of XXV, every single position has a one-month call period. So after one month, if you've made money, boom, the position gets closed. You keep the premium, you write another one. My question to these other ETFs, the XV and XXV that are targeting the higher yields. So there are other income-oriented ETFs out there that are selling options against these highly volatile stocks and getting these huge distribution yields, right? But if you look at the total returns, they're not getting investors much of anything at all because it'll audit depends on the stock. but it sounds to me like you're doing more of the structured note thing on these individual stocks. Is that correct?

You're not just like selling options for income here because they're highly volatile. There's something else going on here. Is that right? Yeah, we're doing the same structure note process we talked about. These are OTC negotiated contracts on individual stocks in the case of XXV. In the case of XV, it's three equity indices. Same with S bar, three equity indices. The folks that are out there distributing these super, super high double digit yields,

they're largely doing return of capital, which is a little bit confusing for investors in my mind. We're distributing the earnings that we make from the product. These other investors are probably returning some of that option premium, but they're also doing return of capital, which is something to be aware of. It does reduce your cost basis. It's not a taxable event. It does reduce your cost basis, but it's not really earned income. It's distributed income.

There's a big difference between those two concepts. Right. But you're not doing that where you're returning to capital. No, we are not. We are not. Okay. So here's what I love about this concept and why I was so, why I kept pressing on the downside, because I think it's really important for investors to understand this is the risk. This is the upside. And now I can make an informed decision with stocks, with bonds to a lesser degree, but certainly with stocks, like, you can't defunds. find your risk, right? Like, we know what the average return is, but like, we also know that the average turn is bullshit because it's, it's never average. So I love that an investor can make an informed decision of, okay, this is how this particular strategy works. I understand the downside. I understand what happens in a COVID market. I understand what happens if we're down and we're

stand down. I know what happens to 8% of the time. And then also, like, that's the bad. And here's the good. And now I can make a decision for myself. Yes, I do like it. I like. I like some protection. I understand the market to market, but I'm getting 9 to 11%. I know in the environment in which it works. I know the environments in which it doesn't work. Like, I like that concept. Yeah, I would agree with you, Michael.

I managed money for a principal for 30 years, manage about $80 billion for them. And this was global clients. And every year I get asked, what's your return target? What do you think the market's going to do? Well, the drivers of equities are earnings and multiples. Good luck trying to forecast either one of those, right? And so that's why I think, you know,

what appealed to me about simplify is that we can take unstructured unknown outcomes and try to create that structure for people. And with the structured note strategies, S-bar XV, X-V, I can give you a pretty good certainty on what the outcomes are going to be. If returns are less than the barrier, you have no drawdown or limited drawdown, right? If things become more difficult, which again happens, you're going to participate, but it's somewhat protected. And one thing we haven't talked about, Michael and Ben is, given our derivative expertise here at Simplify, is we also put in a long put option in both XV and S bar. So I think of that as like flood insurance. So we're able to get 100% notional protection on both portfolios at a fraction of a cost.

I think it costs us about 12 basis points. So in addition to having the barrier, we also have a long put option on the portfolio. And then that things get really, really, really bad. That option contract will monetize and help protect any sort of draw down. in the marketplace. So when does that option begin paying off? Is that, I mean, is like a 40% decline or something? Like, when does that kick in? Well, it's about a 20% out of the money put option that expires in February. So again, it's below the barrier. So that put option will help offset any sort of drawdown from the barrier option that we sold at 30% out of the money. So again,

these are different tools that we use to keep investors invested in the market, to smooth out that that draw down potential. We know that investors get compensated for taking risk. And in my opinion, a 92% probability of not breaking the bear is a pretty attractive offering. And you get the double digit yield that's generally tax ordinary levels with that embedded protection plus the seatbelt of the put option. It's a pretty compelling investment opportunity for investors, in my opinion. Michael kind of already asked this question, but I'll ask in a different way. Because advisors, we have a lot of advisors listening to the show. They like labels.

Are people putting this, is this like an alternative investment for a lot of advisors? Is that the way they're looking at it? It's not really stocks. It's not really bonds. It's kind of different. Is that fair?

Yeah, I think it's fair. Morningstar would put this in a derivative income category. Same with like a call option selling strategy. The problem I have with call option selling strategy is you don't have any downside other than the income that you're generating. And you're really limiting your upside because you're basically selling upside for income.

And so when you get a very difficult market, say down 20%, call option selling me, you're going to participate in most of that drawdown. Whereas here, you're getting higher yields, but you got this corridor protection from 25 to 30%. And yeah, your upside is somewhat cap to the yield, but at least you have some protection of, you know, a strategy that's selling calls. You're fully exposed to the drawdowns. So derivative income would be the cap of income. Jeff, yeah. Derrative income. Okay.

Yeah, I think that makes sense. It's not stocks and it's not bonds. It's somewhere in between. So Ben and I are coming at you through the lens of an advisor, what sort of questions they would ask. I'm curious, what have the conversations been like that you're having with advisors? Like, what are they telling you? Well, we have dozens of conversations a week talking about these three strategies. I would say the folks that have used structure notes in the past love it because they don't have to have the operational burden of monitoring calls and rolling and all that donkey work.

if you get it. They get it. They understand it. And honestly, this is how they've differentiated their practice. They've said, I can give you access to outcomes through these investment banks as an advisor because I do a structure. No, it sounds very exclusive, right? Well, now that it's in a commingled vehicle, anybody can buy it. My neighbor could buy it for $25.25. They get one share. So there's no account minimum. You could buy it for $25, $26 a share. The advisors that haven't heard of structure or haven't use structure notes. Their response has been, huh, very interesting. I love the outcomes. I like the double-digit yields. I like the protection levels that are advertised. I need to kind of spend a bit more time studying this. So they'll spend time, you know, Google. What's a structure note?

Yeah, exactly. Exactly. But you can overcome that by saying it's an ETF. So their compliance departments like it, because it's just like any other ETF, IVV. But the outcomes are a bit more certain than a cheap beta. And so I think that's where investors are gravitating towards these strategies for us in the sense that they're willing to, I mean, we're not giving these for free. It's 75 basis points for all three strategies.

And they're willing to pay for that if you get the outcome that we're advertising. And so far, we've realized about a 10-vall, an S-Barr with about a 14% return since inception. So things look good. You know, we get asked all the time, what happens if rates get cut? Yes, your yield from the treasuries would go down.

But as long as you continue to have heightened volatility, like, for example, government shutdown led to more equity volatility. The options that we were selling, we were getting higher premiums in November than we were September. So best case scenario is you have rising equity markets with heightened volatility. That's like the best case scenario because your options get called. And then you also have the ability to avoid the barrier threshold. So that's like the best case. Which is funny. You guys actually, you want more volatility.

Because usually these types of strategies don't want more volatility, but you do. We do want more volatility. But here's the thing, if we have normal volatility, our expectation for ESPO would be to distribute 10%. We've been distributing 12.9 because we had heightened volatility from the tariff tantrum in April, plus the government shutdown. And who knows what 2026 is going to look like. But as long as we don't break the barrier, we're going to be, investors are going to be enjoying nice yields from the options and probably less though from the treasuries.

All right, Jeff. You guys are doing really interesting work over. I simplify a lot of unique, derivative income alternative strategies for people that want to get in touch to learn more about your suite of ETFs. Where do we send them? I would just go to simplify.us. You'll find all sorts of content videos. We do a great job of highlighting and short little videos as well as longer deep dive videos.

We have fact sheets. We have thought capital. Lots of information out there for investors to learn more about Simplify and to get exposure to these great solutions. All right. Very good. Appreciate the work you guys are doing. Thank you for coming on. No problem. Thank you. Have a great day. Okay. Thanks to Jeff. Remember check out Simplify.com to learn more. Email us, Animal Spirits at the compound news.com.