New York-based Simplify Asset Management has debuted its first ETFs with the launch of three strategies based on the S&P 500 Index while using option overlays in an attempt to enhance portfolio returns.

The funds use option strategy overlays in a bid to enhance portfolio returns.

The Simplify US Equity PLUS Convexity ETF (SPYC US), Simplify US Equity PLUS Downside Convexity ETF (SPD US) and Simplify US Equity PLUS Upside Convexity ETF (SPUC US) have all listed on NYSE Arca.

The ETFs invest 80% of their assets in the $240 billion iShares S&P 500 ETF (IVV US).

The remaining 20% of each ETF’s assets is allocated to an actively managed options component which is designed to create a convex payoff profile for the fund.

Convexity is a mathematical term which, in this case, indicates that the relationship between the performance of the ETF and the S&P 500 is not linear.

The options overlay of the Simplify US Equity PLUS Convexity ETF aims to create a convex payoff on both the upside and the downside. The strategy consists of purchasing a series of out-of-the-money put options in order to increasingly protect capital as market drawdowns deepen, as well as purchasing a series of out-of-the-money call options in order to accelerate performance as the market rally strengthens.

The ETF is likely to outperform in strong bullish or bearish conditions but may underperform when the S&P 500 is range-bound – the options contracts expire out-of-the-money and their cost weighs on the fund’s performance.

The options overlay of the Simplify US Equity PLUS Downside Convexity ETF, meanwhile, aims to create a convex payoff on the downside only by purchasing a series of out-of-the-money put options.

The ETF is likely to outperform in bearish conditions but may lag the market during bullish or range-bound conditions.

Similarly, the options overlay of the Simplify US Equity PLUS Upside Convexity ETF aims to create a convex payoff on the upside only by purchasing a series of out-of-the-money call options.

The ETF is likely to outperform in bullish conditions but may lag the market during bearish or range-bound conditions.

According to the prospectus, the ETFs will purchase options as needed depending upon rebalancing requirements, the individual option expiration dates, and the current level of market volatility.

Each ETF comes with a net expense ratio of 0.28% due to a contractual fee waiver in place until at least September 2021. The funds’ gross expense ratios are 0.53%.