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In mid-April, Simplify ETFs launched a pair of what they call “barrier ETFs”, which use an advanced option strategy to generate above-average income for investors. The strategy is fascinating and hopefully profitable.

Barrier put options have binary outcomes. Suppose the underlying asset is above the barrier at expiration. In that case, the option expires without value, and the seller of the barrier options’ profits will be the money received from selling the puts. The seller will realize the losses if the underlying assets pierce the barrier.

For the new ETFs, the Simplify strategies sell barrier put options based on the worst-performing of three equity index ETFs representing US large cap, US small cap, and US growth stocks. The barrier options have one-year terms, and the funds hold a laddered portfolio of the barrier puts.

Here are the funds:

• Simplify Barrier Income ETF (SBAR)
• Simplify Target 15 Distribution ETF (XV)

SBAR will employ a 30% barrier. That means the worst of the listed index ETFs must be down by more than 30% when the put expires for the ETF share price to participate in the decline. The underlying indices can rise and fall before expiration, and the SBAR/XV share price will follow. Still, the only determinant of ongoing returns will be the status of the barrier put in place when it expires.

These ETFs have quickly gathered assets with $30 million already in SBAR and almost $40 million in XV. We will be following them closely in our ETF Income Edge service. Grab a subscription if you want expert advice on ETFs like these and other high-yield funds.

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