Innovator Releases Hedged TSLA Strategy ETF

The ETF will seek to solve for the large historical drawdowns in shares of the electric vehicle leader, offering potentially substantial upside exposure to TSLA during periods when the stock rises while attempting to limit downside risk by targeting a protective floor against TSLA losses greater than approximately 10% per quarter.

“While there is little doubt Teslas are amazingly sleek, smooth-driving vehicles, the very volatile ride in the shares of the electric vehicle leader leaves a lot to be desired for advisors and their clients who are not accustomed to such a rough road,” said Bruce Bond, CEO of Innovator ETFs, in a news release. “Yet, the innovation potential that Elon Musk’s company represents is hard to ignore.”

Bond added: “For those investors with a lower risk tolerance who still desire exposure to the potential capital appreciation of one of the most inventive entrepreneurs and leading disruptors in the global economy today – as well as those longtime shareholders who have seen substantial gains in TSLA and would like to take some gains yet still have upside exposure, or who wish to put new money to work but in a risk-managed fashion – we’re excited to bring this investment strategy to market. In fact, TSLH will list as the first ETF ever to provide long exposure to a single-stock with built-in risk management.”

To provide risk-managed investment exposure to TSLA, TSLH’s actively managed portfolio is comprised of two parts. The minority of TSLH’s portfolio, approximately 10%, will be composed of a call option spread on TSLA using FLEX Options. Roughly 90% of the portfolio will be comprised of Treasury Bills (cash equivalents) to construct a potential floor against significant losses on a quarterly basis.

This blend allows investors who hold shares for a full calendar quarter to participate in TSLA’s potential upside, to a cap, while seeking to protect against the prospect of losses greater than 10% each quarter. TSLH will actively reset its portfolio each quarter, and investors can hold shares indefinitely.

The projected upside cap for the balance of the current calendar quarter (through September) is 8.7%.

“TSLH is trying to solve for how investors can gain exposure to a highly appreciated asset – in this case one of the world’s largest and most technologically imaginative companies – but limit their tail risk in the event of a potentially significant downdraft in TSLA over any quarter,” added Innovator ETFs CIO John Southard in the release. “It is likely that history books will have important chapters devoted to Elon Musk, and we want to provide more risk-averse investors who believe in the future of his flagship company with a strategy that we think can help them overcome the volatility and possibility of big short-term losses when investing in TSLA itself.”

Milliman Financial Risk Management LLC will serve as the fund’s subadvisor.

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