Shawn Gibson, Co-founder and CIO of Liquid Strategies, and Eric McArdle, Co-founder and CEO, discuss the fascinating world of option-based strategies. They unpack the rapid rise of options in ETFs, highlighting the pitfalls of covered calls and the importance of risk management. The duo explores how to properly utilize overlays for income and protection, emphasizing the complexities of high-yield products. They also delve into innovative techniques like put spreads and interval funds, offering insights on balancing risk and enhancing portfolio performance.
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insights INSIGHT
Options Went Mainstream From Two Forces
Options became mainstream as income and product innovation rose during low rates.
Adoption accelerated once advisors focused on benefits rather than learning option mechanics.
volunteer_activism ADVICE
Avoid Asymmetric Return Profiles
Avoid asymmetric option profiles that cap upside while leaving downside intact.
Prefer structures that remove extreme asymmetry or provide explicit downside buffers.
insights INSIGHT
Capping Upside Erodes Long-Term Returns
Pure covered-call programs typically reduce long-term total return by capping upside.
Buying calls to limit upside loss and using premium to buy downside buffers materially improves outcomes.
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In this episode of Excess Returns, we sit down with Shawn Gibson and Eric McArdle of Liquid Strategies to explore the rapidly growing world of option-based ETF strategies. With the rise of covered calls, buffered products, and hedged equity funds, it’s more important than ever for investors to separate smart solutions from risky marketing gimmicks. Shawn and Eric break down how their firm approaches overlays, income generation, and downside protection in a way that helps advisors and investors achieve better long-term outcomes.
The evolution of options in ETFs and why adoption has accelerated
Common flaws in covered call strategies and the risks investors miss
How Liquid Strategies uses option overlays to add return, income, and downside protection
The “Swiss Army knife” approach to using put spreads for multiple portfolio goals
The importance of timeframe in option strategies and the debate around 0DTE
Why “high yield” products often just return investor capital
Using options for true risk management and hedging vs. cosmetic protection
How Liquid Strategies structures its ETF suite and interval funds
Where hedged equity and bond overlays can serve as ballast in portfolios
Standard closing lessons for investors on staying invested and balancing risk
00:01 – Introduction to Liquid Strategies and option-based ETFs 02:34 – The rise of options in portfolios and industry evolution 05:29 – Flaws in common options strategies 08:19 – Covered calls: why they often disappoint 12:00 – Balancing upside, downside, and income in overlays 15:31 – What overlay strategies really mean 20:19 – The “Swiss Army knife” of selling put spreads 24:09 – Why timeframe matters and 0DTE options debate 28:56 – How rates and volatility impact option overlays 32:59 – The importance of systematic but flexible processes 36:46 – High yield traps and returning investor capital 43:04 – Using options for hedging and risk management 46:47 – How advisors incorporate overlays into portfolios 48:54 – ETFs vs. interval funds explained 54:26 – Where overlays fit in today’s asset allocation 57:55 – Closing lessons for investors
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