Reading a buffer ETF
The vocabulary, in the order it comes up when you read the band. Thirty seconds for the first four, the rest when you need them.
- The band
- One line from the fund’s floor on the left to its cap on the right. Teal is the losses the fund absorbs, clay is losses that are yours, grey is the room to gain. The solid marker is where the index is today; the hollow one is where the fund is.
- Can still gain
- How much more the fund can return from today’s price before it hits its cap. This is what a buyer today gets, after fees. Issuers publish it against the fund’s current price.
- Fall before buffer
- How far the fund's price can drop from here before the buffer starts absorbing losses, as the issuer publishes it. The fund card also gives the index-terms figure: if the index is up 12% and the buffer starts at zero, the index can fall about 11% first. The number most people miss when buying mid-period.
- Protection left
- How much of the buffer still sits below today’s index level. All of it when the index is above its starting level; less once the index is inside the buffer range.
- Reference asset
- The ETF the fund’s options are written on: SPY for the S&P 500, QQQ for the Nasdaq-100, IWM for the Russell 2000, EFA for developed markets outside the US. Every position on the band is that asset’s price return since the period began.
- Outcome period
- The window, usually twelve months and sometimes six or three, over which the cap and buffer apply. On its last day the options expire, the fund resets, and a new cap is struck from that day’s option prices.
- Cap
- The most the fund can return over the period if held from the first day to the last. Quoted gross and net of fees. Set by the option market on day one, so the same fund can have a different cap each year.
- Buffer, buffer start and floor
- The range of index losses the fund absorbs. Most buffers start at zero. Deep and ultra buffers start at −5%: the first five points of loss belong to the holder. A fund marked −5 to −35 is unprotected from 0 to −5, protected from −5 to −35, and unprotected again below −35.
- Full floor
- A fund whose buffer covers every loss to −100%, in exchange for a lower cap. The band draws a floor glyph at its left edge.
- Fund return and index return
- Both measured since the period began. Mid-period they diverge: near the cap the fund lags the index because the short call still carries time value; inside the buffer the fund holds up better because the long put does. The gap closes on the last day.
- At cap
- The index has reached or passed the cap. The fund cannot gain further in index terms, though its price may still rise toward the cap as time value decays.
- Buffer exhausted
- The index has fallen through the floor. Losses beyond the floor are the holder’s, point for point.
- Participation rate
- On uncapped funds, the share of index upside the fund delivers, for example 88%. There is no cap, so the band’s upside track has no right edge.
- Ladder
- Holding rungs whose periods end in different months so caps and buffers refresh gradually. The ladder builder shows the blended figures and the calendar of resets.
- Issuer figures and ETFIQ calculations
- Columns with solid headers are values the issuer publishes or files. Dotted headers are arithmetic ETFIQ performs on published terms: the band, the state and the ladder blends. ETFIQ does not rank funds or recommend any security.
Where to next
Definitions as ETFIQ uses them on the buffer desk. Every figure on the site is stated arithmetic on published data. Standards and sources