As we approach the fourth and final quarter of 2025, uncertainty looms large, not just in the equities market but also in the bond markets. For investors seeking to mitigate anxiety, options-based ETFs can offer a viable solution. However, many still wonder: How do these products work, and how can they fit into my portfolio?
In a recent webinar, TMX VettaFi investment strategist Cinthia Murphy was joined by Fidelity Investments’ VP and Head of ETF Strategists, Craig Ebeling, along with Investment Product Group Director, Rob Mouritsen. They discussed the topic in depth during a session titled: Unlock Opportunities with Options-Based ETFs. Ebeling and Mouritsen debunked common myths surrounding options-based ETFs and provided a quick primer on their strategies, along with three Fidelity funds suitable for various portfolios.
Why Use Options-Based ETFs?
At the start of the webinar, the audience was asked about their primary goal for using options-based ETFs. The predominant response was managing risk and portfolio volatility.
“For many of our clients, it’s very outcome-oriented,” Ebeling explained. “They face specific problems or scenarios they want to address, whether it’s changing interest rates, market volatility, or downside protection. Options can provide a straightforward, math-based approach to tackle these issues.”
He further noted, “These strategies can help keep clients invested through various market cycles, offering downside protection, reducing volatility, and serving as a source of income in a changing interest rate environment.” Interestingly, 18% of the audience admitted they had never used options ETFs, highlighting the need for investor education in this area.
The Active ETF Advantage
Before diving into specific strategies, Ebeling highlighted the benefits of using an active ETF wrapper, which include transparency, cost-effectiveness, tax efficiency, and active flexibility.
Active ETFs are gaining traction, with $290 billion in inflows as of August 2025. Notably, Nontraditional Equity funds accounted for $43 billion of this, indicating a growing interest in options-based strategies (Source: Bloomberg and Morningstar as of 6/30/25).
Factors driving this adoption include the increasing correlation between stocks and bonds and heightened market volatility. In the current rate-cutting environment, derivative income strategies can yield an average of 7.99% over 12 months, surpassing emerging market debt yields of 7.54%.
Options-Based Strategies
Despite the potential benefits, many investors remain hesitant due to a lack of understanding. A poll revealed that 37% of attendees were unsure how to use options-based ETFs, while 29% did not fully grasp their mechanics.
Fidelity clarified the mechanics of options-based ETFs, focusing on two primary strategies: hedging and buffering. Hedging protects against downside risk while allowing for upside capture, whereas buffering aims to generate alpha in volatile markets. Investors seeking income and diversification can also benefit from these ETFs.
“Understanding these differences is crucial for investors,” Ebeling emphasized.
3 Funds for Options-Based Strategies
Fidelity offers three funds tailored to various options-based strategies:
- Fidelity Hedged Equity ETF (FHEQ)
- Fidelity Dynamic Buffered ETF (FBUF)
- Fidelity Yield Enhanced Equity ETF (FYEE)
“If you want protection from a moderate to sharp down market while still participating in an up market, the Hedged Equity ETF is ideal,” Ebeling noted. “For a sideways and choppy market, the Dynamic Buffered ETF is a great choice. If you seek market participation with some downside protection and enhanced yield, then FYEE is the way to go.”
Mouritsen elaborated on each fund’s strategies, emphasizing the expertise of the portfolio managers in navigating these growing options-based strategies. Fidelity is committed to listening to client needs and responding with suitable ETF products.
“We began our work in options and derivatives in 2012,” Mouritsen shared, noting that “like many firms, we’ve expanded into the alternative space over the past five years.”
Limited 0% Expense Ratio
With the U.S. Federal Reserve’s first rate cut in September, the timing is perfect for investors looking to diversify their income with FYEE. Typically, this fund has an expense ratio of 28 basis points, but a limited-time offer has introduced a 0% expense ratio.
“We currently have a fee waiver that started on September 1st,” Ebeling explained, adding that it will last for 12 months or until assets under management reach $250 million. After that, a blended expense ratio will apply based on total AUM.
To learn more about options-based ETFs, visit the Fidelity website.
For more news, information, and strategy, visit the ETF Investing Content Hub.
Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
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