It’s no secret that part of the appeal of autocallable yield notes is their approach to risk management.
After all, these notes each come with predetermined barrier levels along with a chosen index. As long as that index doesn’t drop below the barrier level, the autocallable note will continue to deliver income until the note is eventually called.
One autocallable yield note alone already can offer a good deal of downside protection. The barrier allows each note to potentially keep delivering monthly coupons, even if the market is down a little bit.
However, this approach to risk-managed equity income can be further amplified by tackling autocallable exposure in a laddered format. As an example, take a closer look at the recently-released Calamos Nasdaq Autocallable Income ETF (CAIQ).
CAIQ invests in more than 52 autocallables, each using the same index: the MerQube Nasdaq-100 Vol Advantage Autocallable Index. Constructed specifically for autocallable application, the index fosters Nasdaq-100 exposure with an implied volatility target of 35%.
Furthermore, each note in CAIQ’s portfolio has the same barrier level of -30%. This gives CAIQ’s investors leeway. They can accrue income from the Nasdaq-100, even if the index is flat or seeing a modest decline.
CAIQ Showcases the Laddered Strategy in Action
The laddered structure of CAIQ’s portfolio provides plenty of benefits. It offers advantages over investing in singular autocallable notes, or even a traditional equity income strategy. Since each note has different entry and exit points, along with call dates, CAIQ can potentially offer lower tail risk. Some notes could drop below the -30% level, but others may not, providing a cushion of income that balances out the risk of principal.
Better yet, the mix of different call dates could also help provide CAIQ with a smoother income path than a singular autocallable note strategy. Instead of relying on one call date, CAIQ’s 52 different notes provide a mix of different call dates, which could lead to more stable income.
Lastly, once an autocallable in CAIQ’s portfolio reaches its call date, the principal is then immediately reinvested, and a new call period begins. This helps mitigate reinvestment risk, which is especially complicated in the field of autocallables.
Put together, the laddered format can take an already risk-adverse strategy and further lower that risk through diversification and adaptability. Coupled with ease of access through the ETF wrapper and a nimble reinvestment process, this approach can make it easier than ever to deliver income through the equity market.
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Before investing, carefully consider the fund’s investment objectives, risks, charges and expenses. Please see the prospectus and summary prospectus containing this and other information which can be obtained by calling 1-866-363-9219. Read it carefully before investing.
An investment in the Fund is subject to risks, and you could lose money on your investment in the Fund. There can be no assurance that the Fund will achieve its investment objective. Your investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund can increase during times of significant market volatility. The Fund also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund’s prospectus.
The principal risks of investing in the Calamos Nasdaq Autocallable Income ETF include: autocallable structure risk, contingent income risk, early redemption risk, barrier risk, authorized participant concentration risk, calculation methodology risk, cash holdings risk, correlation risk, costs of buying and selling fund shares, counterparty risk, credit risk, derivatives risk, equity securities risk, index risk, interest rate risk, investment in a subsidiary, laddered portfolio risk, liquidity risk, market maker risk, market risk, new fund risk, non-diversification risk, premium-discount risk, secondary market trading risk, swap agreement risk, tax risk, trading issues risk, valuation risk, and volatility target index risk.
Autocallable Structure Risk: The Fund’s returns are correlated to the performance of a synthetic portfolio of autocallable notes tracked by the Laddered Autocall Index. Autocallable notes have specific structural features that may be unfamiliar to many investors.
Contingent Income Risk: Coupon payments from the Autocalls are not guaranteed and will not be made if the Underlying Index falls below the Coupon Barrier on observation dates. This means the Fund may generate significantly less income than anticipated during market downturns.
Early Redemption Risk: Autocalls in the Portfolio may be called before their scheduled maturity if the Underlying Reference Index reaches or exceeds the Autocall Barrier on observation dates. This automatic early redemption could force reinvestment of that portion of the portfolio at lower rates if market yields have declined.
Barrier Risk: If the Underlying Reference Index falls below the Protection Level Barrier at the maturity of an Autocall in the Portfolio, that portion of the Portfolio will be fully exposed to the negative performance of the Underlying Reference Index from its initial level. This conditional protection creates a binary outcome that can result in sudden, significant losses if barriers are breached.
The MerQube Nasdaq-100 Vol Advantage Autocallable Index is designed to reflect the collective performance of a theoretical portfolio of 52 to 260 synthetic Autocallables arranged in a laddered structure with staggered entry points with similar fixed parameters (the “Parameters”) as described below within the section entitled “Autocallable Index Portfolio Characteristics”.
Nasdaq® is a registered trademark of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and is licensed for use by Calamos Advisors LLC. The Fund has not been passed on by the Corporations as to their legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND(S).
Calamos Financial Services LLC, Distributor
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