Fri Jun 13 2025

Today’s world of ETFs and mutual funds increasingly features new flavors, a popular one of which is derived from embedding optionality. There are plenty of ways in which one might contemplate risk managing and shaping the distribution of equity returns using options. Common strategies like overwriting create income, but limit upside. Others like the zero cost collars create both upside and downside guardrails on returns. These strategies can be back-tested. Because they also exist in the market, with more than $200bln in AuM, the performance of the funds can be evaluated as well. With this in mind, it was a pleasure to welcome Dan Villalon, Global Co-Head of Portfolio Solutions at AQR Capital Management, back to the Alpha Exchange. Dan walks us through the findings from his research, published in a two-part series on the AQR website. In these notes, Dan dissects the drawdowns and returns across these funds. The findings are rather striking: across a wide sample of buffered funds a...