Podcast Summary: Ask The Compound – "How Do You Hedge With Options?"

Air Date: January 21, 2026
Hosts: Ben Carlson & Duncan Hill
Guest: Brian Jacobs, Portfolio Manager, Aptus Capital

Overview

This episode dives deep into the rapidly changing landscape of investment products that utilize options – especially actively managed and buffered ETFs designed for income generation, defined risk, and portfolio hedging. Ben and Duncan field a series of listener questions ranging from the mechanics of options in ETFs, the pros and cons of buffered products, international stock performance cycles, the meaning of financial independence, and practicalities of making major household finance decisions. They're joined by expert guest Brian Jacobs, who brings an “explain-like-I’m-7” clarity to complex products and strategies.

Key Discussion Points and Insights

1. How Options Are Used Within ETFs (02:41–04:47)

• Options as Market Tools:

  • Brian Jacobs explains options as a form of insurance, highlighting the concepts of buying puts for downside protection and selling calls for income ("covered calls"); these can be packaged flexibly to create customized outcomes.
  • Quote:

    “The way I'd like to think about it ... is almost like an insurance premium where you're paying out a certain dollar amount to buy protection... Or you’re the seller, collecting that premium up front.” (03:23–03:44, Brian Jacobs)

• Use in Modern Portfolios:

  • Options in ETFs have become popular for hedging market risk and generating additional returns, providing new tools beyond traditional stocks and bonds.

2. Collared Strategies & Actively Managed Option ETFs (05:46–09:16)

• Structure of Collared ETFs (e.g., Aptus’ ACIO):

  • Uses both downside protection (puts) and upside caps (calls) – capping potential gains to pay for losses – yielding “middle ground” exposure between stocks and bonds.
  • Ideal Use Case:
    • Helps investors avoid extreme gains/losses (“getting rid of the tails”).
    • Active management allows for flexibility compared to fixed “buffered” strategies.

• Tax Efficiency:

  • Such ETFs, when structured properly, can be highly tax-efficient, particularly when substitutes for bond allocations.

• Quote:

  “A collar strategy really encompasses both of those strategies in one product... In the ideal world, you're pushing the cap as high as possible and having the protection as close to the current price as possible.” (05:58–06:56, Brian Jacobs)

3. Fixed Income Replacement Using Options (09:37–12:45)

• Aptus DRSK (De-Risk) ETF:
  • Designed as a fixed income alternative, features a core bond ladder plus both puts and calls on the equity market for “shock absorption” and a chance at enhanced returns.
  • Key Mechanism:
    • Trades some expected stable bond return for the potential to benefit from equity market moves (both up and down), at the expense of a slightly lower return during flat markets.

4. Buffer ETFs: How They Work, Expected Returns & Tradeoffs (13:36–19:25)

• Buffer ETFs Explained:

  • Provide mapped downside protection (e.g., first -15%) for a defined period (often one year), but cap upside gains.
  • Popularity:
    • Once niche, now a ~$200B industry with rapid growth.
    • New products include portfolios-of-portfolios (“funds of buffers”).

• Return Dynamics:

  • Buffered ETFs may yield 60–80% of stock market returns depending on cap rates and market volatility; best compared to balanced portfolios, not pure equity exposure.
  • Cost Matters:
    • Funds with lower fees can afford to set higher caps, raising expected returns.

• Psychological Angle:

  • Buffer strategies provide “peace of mind” for those who’d otherwise panic in drawdowns; allows them to remain invested instead of fleeing to cash in market stress.

• Quote:

  “The less risk you're taking within a buffered strategy ... the less return. Something that looks and feels more like stocks is gonna have return more like stocks.” (15:09–15:50, Brian Jacobs)
  “[These] are for someone who's going to get scared and sell out potentially. This is something they can sleep at night with, it seems...” (18:45–19:00, Duncan Hill)

• Technology & AI:

  • AI-driven advancements are enabling more precise, scalable, and customizable options-based products.

5. International Stocks—Cycles of Outperformance (22:03–25:35)

• Cyclical Performance:

  • 2025 was the first year since 2017 that international stocks outperformed the US; over ten years, US still ahead by ~170%.
  • Diversification Lessons:
    • International vs US stock cycles span decades, with varying magnitude and duration, underscoring the unpredictable value of global diversification.

• Quote:

  “So the question is, well, was that a turn? ... Is this a blip or a new cycle? I don't know. That's the hard part. But I'm still willing to believe that almost everything is cyclical in markets.” (24:27–24:59, Ben Carlson)

6. Financial Independence—Beyond the Numbers (25:40–32:18)

• Existential Money Question:

  • Retiree with significant wealth struggles with the meaning and enjoyment of financial independence.
  • Hosts’ Advice:
    • Financial independence isn’t just about wealth—it’s about purpose, social connections, and structure.
    • Work can remain part of a fulfilling retirement if it offers meaning and isn’t driven by stress.
    • Cultivate hobbies, volunteer, or pursue “giving back” work to maintain purpose and relationships post-retirement.

• Quote:

  “Work can also be part of your financial independence... It gives you a reason to get out of bed in the morning, keeps your brain functional...” (26:38–28:06, Ben Carlson)

7. Should One Spouse Stay Home? (32:20–36:45)

• Practical and Emotional Considerations:

  • Decision should be personalized; both full-time work and stay-at-home choices come with unique financial and lifestyle tradeoffs.
  • Daycare costs (often $20–25K/year for multiple young children) can tip the balance.
  • Run a “test period” living on one income before making the leap; having a savings buffer helps.
  • Don’t let external judgment or societal expectations sway the decision—what matters is what works for your family.

• Quote:

  “My first piece of advice, figure out what works for you and your family... Test run it. If you're thinking of having one spouse quit, try to live on one income for six months...” (33:00–36:18, Ben Carlson)

8. Audience Q&A & Notable Moments

• Zero-day Options for SPY (21:45):
  • Retail access to highly sophisticated hedging strategies once reserved for institutions (“2 and 20” hedge funds). Hosts caution: know what you’re doing or seek professional guidance.
• International cycles and technicals banter:
  • “JC’s bullish!”—Ben pokes fun at market-timer debates.
• Retirement socialization:
  • Hosts swap reflections on how work provides essential social connections, which can be hard to replace in retirement.

Notable Quotes & Timestamps

• On Options as Insurance:

  “...what options are really used for a lot of ways in investing is almost like an insurance premium.”
  (03:23, Brian Jacobs)

• On Buffer ETF Returns:

  “Historically instead of 10%, they returned about 6.2%. For every additional 1% cap higher, it's been an incremental return of about 0.6%...”
  (16:52, Brian Jacobs)

• On Financial Independence:

  “I do think ... there is this idea ... financial independence is the only thing that matters. But the step ... they don’t get to is, well, what are you going to do?”
  (26:38, Ben Carlson)

• On Spouse Quitting Work:

  “Try to live on one income for six months... So I think that's a test run on the math side of things and it builds a buffer...”
  (36:18, Ben Carlson)

Important Timestamps

| Time | Segment / Topic | |-----------|--------------------------------------------------------------| | 02:12 | Listener Q: Actively managed ETFs using options | | 03:23 | Options as insurance & hedging | | 05:46 | Collared strategy in options ETFs (ACIO) | | 09:37 | Fixed income “De-Risk” ETF using options (DRSK) | | 13:36 | Buffered ETFs: prevalence and design | | 15:09 | Buffer ETF trade-off: less risk = less return | | 16:52 | Historical returns for buffered ETFs | | 18:45 | Who are buffer ETFs for? (Peace of mind investors) | | 22:03 | International stocks cycles and performance discussion | | 25:40 | Existential question: meaning of financial independence | | 32:20 | One spouse staying home: math, emotions, societal judgment | | 36:18 | How to test the decision to have a spouse stay home |

Closing Thoughts

Ben and Duncan, joined by Brian Jacobs, provide practical clarity on how options and modern ETFs can fit a variety of portfolio goals, but stress the importance of knowing your own needs, psychology, and long-term objectives—whether in investing, planning for retirement, or making major life decisions. The landscape of investment products is broadening, but thoughtful consideration and a clear sense of what's right for you is more important than ever.

For further learning:

• Find Brian Jacobs’s writing: “If you type Aptus Capital and blog into Google, it'll come up to our site... there's a buffered ETF suite landing page...” (19:57)
• Submit questions: askthecompoundshowmail.com
• Hosts' recommendation: Go “eyes wide open” into sophisticated products, consider your psychological (not just mathematical) needs, and seek professional guidance if needed.