Unlocking Options Overlays: Hull Tactical’s HTUS ETF

The Hull Tactical U.S. ETF (NYSE: HTUS) offers a unique and transparent approach to options overlay strategies. By integrating options into its investment system, Hull Tactical Asset Allocation has created a sophisticated exchange-traded fund (ETF) solution aimed at enhancing returns while managing risk effectively.

Wealth Advisor Managing Editor Scott Martin sat down with Hull Tactical Senior Financial Engineer Euan Sinclair to discuss the firm’s approach to integrating options overlays into its ETF strategy and discover how its focus on continuous research and improvement enables Hull Tactical to provide advisors with an innovative, flexible investment option that can potentially deliver alpha.

Investment solutions incorporating options overlays often evoke a sense of complexity and risk, which can be intimidating for investors and advisors alike. Sinclair addresses this concern by emphasizing that HTUS is designed to avoid the pitfalls of traditional options trading strategies. Many options-trading ETFs follow a rigid, unchanging strategy, which can be detrimental. Sinclair believes that any investment approach must be adaptable and sensitive to market conditions to succeed. Predictability in options trading comes from understanding volatility, which is easier to forecast than price movements but requires diligent work and sophisticated modeling.

Volatility is the cornerstone of options pricing, particularly the volatility of the underlying asset, which for HTUS is the S&P 500. Sinclair explains that although predicting volatility is a more straightforward task than predicting price, monetizing this prediction is challenging. The key lies in thorough mathematical analysis and forecasting. HTUS leverages seasonality effects and other predictable elements to enhance its strategies, making volatility an integral part of Hull Tactical’s modeling.

HTUS does not treat options strategies as mere add-ons but as an integral part of its investment process. For instance, the fund frequently employs a risk reversal strategy, involving long calls and short puts. Shorting puts may appear risky, but Sinclair clarifies that such positions are actively managed and aligned with the fund’s overall market outlook. If the market declines slightly, HTUS’s model may indicate a buying opportunity, and the short puts naturally position the fund to capitalize on this dip.

Sinclair stresses the importance of active risk management in options trading. Unlike some investment strategies that may claim robust risk management but lack substance, HTUS prioritizes continuous monitoring and adaptation to market conditions. This vigilance ensures that the fund navigates risks effectively, similar to the way a driver must remain cautious while operating a vehicle. HTUS is designed to meticulously manage the inherent risks of options trading, aligning with the fund’s broader market strategy.

Hull Tactical prides itself on transparency and adaptability. The fund does not subscribe to black-box investing; instead, it operates as a “gray box,” where the underlying models are well understood and systemically reviewed continuously. Sinclair compares managing the model to supervising a junior trader—encouraging autonomy while providing oversight. This approach ensures that the fund remains responsive to market changes and constantly seeks improvement.

A further distinguishing feature is Hull Tactical’s commitment to ongoing research and development. The firm employs a significant portion of its team in research roles, reflecting its dedication to refining and enhancing its strategies. This engrained improvement ethos is akin to a hedge fund’s rigorous research process, enabling HTUS to adapt to the ever-changing macroeconomic environment and maintain its edge in the market.

For advisors, HTUS offers a compelling alternative to traditional investment strategies. Rather than relying on repetitive and potentially outdated methods such as covered call strategies, advisors can provide clients with access to a dynamic and sophisticated investment approach. HTUS’s model is constructed to ensure that the ETF remains effective and relevant, leveraging patterns and market behaviors that more static strategies might overlook.

One challenge some advisors might face is communicating the intricacies of HTUS’s strategies to clients without overwhelming them. Sinclair acknowledges this difficulty and suggests a balanced approach—explaining the core principles and benefits without delving too deeply into the technical details. HTUS supports this effort by maintaining transparency through blog posts and direct communication, making complex strategies more accessible and understandable.

HTUS aims to provide clients with a hedge fund–like experience within an ETF structure. This approach means delivering superior returns through advanced strategies while maintaining cost-effectiveness. For clients seeking diversification and enhanced returns without the prohibitive costs associated with hedge funds, advisors can offer HTUS as an attractive option. The fund’s integration of market-timing models with options overlays creates a robust investment approach designed to outperform traditional large-cap stock portfolios.

In essence, Hull Tactical positions HTUS as a smarter core strategy for investors, combining the benefits of the US large-cap stock market with sophisticated options strategies. Sinclair’s confidence in the fund is evident; he personally invests exclusively in HTUS for his US equity exposure, underscoring his belief in its effectiveness. The fund’s adaptability, rigorous research foundation, and transparent risk management make it a standout choice for advisors seeking to offer their clients an innovative and reliable investment solution.

By embracing continuous improvement and maintaining a clear, transparent approach, Hull Tactical not only meets but exceeds the expectations of modern investment strategies. Advisors can confidently recommend HTUS, knowing it is backed by a team dedicated to delivering consistent performance and adapting to the evolving market landscape.


Additional Resources



    Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by visiting www.hulltacticalfunds.com or calling toll-free 1-844-484-2484. Read the prospectus carefully before investing.

    There is no guarantee that the investment objectives will be achieved. Moreover, past performance is not a guarantee or indicator of future results. 

    HTAA, LLC serves as the investment advisor. The Fund is distributed by Northern Lights Distributors, LLC (225 Pictoria Drive, Suite 450, Cincinnati, OH 45246), which is not affiliated with HTAA, LLC.

    About the Hull Tactical US ETF (HTUS) Investment Strategy

    HTUS is an actively managed exchange traded fund (ETF) driven by various proprietary analytical investment models that examine current and historical market data to attempt to predict the performance of the S&P 500® Index (the “S&P 500®”), a widely recognized benchmark of U.S. stock market performance that is composed primarily of large-capitalization U.S. issuers. The models deliver investment signals that the Adviser uses to make investment decisions for the Fund. The investment models used are to anticipate forward market movements and position the Fund to take advantage of these movements. Currently, signals are combined into an ‘ensemble’ array that spans statistical, behavior-sentimental, technical, fundamental, and economic data sources. This combined signal is generated each trading day towards the close of the market and dictates whether the Fund is long/short and the magnitude of position sizing. The Adviser routinely evaluates the performance and impact of each model on the Fund with the goal of realizing a risk/return profile that is superior to that of a buy and hold strategy.

    The use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. These risks include (i) the risk that the counterparty to a derivative transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate, or index. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. The use of leverage by the Fund, such as borrowing money to purchase securities or the use of options, will cause the Fund to incur additional expenses and magnify the Fund’s gains or losses. The Fund’s investment in fixed income securities is subject to credit risk (the debtor may default) and prepayment risk (an obligation paid early) which could cause its share price and total return to be reduced. Typically, as interest rates rise the value of bond prices will decline and the fund could lose value.

    While the option overlay is intended to improve the Fund’s performance, there is no guarantee that it will do so. Utilizing an option overlay strategy involves the risk that as the buyer of a put or call option, the Fund risks losing the entire premium invested in the option if the Fund does not exercise the option.  Also, securities and options traded in over-the-counter markets may trade less frequently and in limited volumes and thus exhibit more volatility and liquidity risk.

    The thoughts and opinions expressed in the article are solely those of the author. The discussion of individual companies should not be considered a recommendation of such companies by the Fund’s investment adviser. The discussion is designed to provide a reader with an understanding of how the Fund’s investment adviser manages the Fund’s portfolio.


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