DDFZ provides 15% downside protection against S&P 500 losses while capturing upside gains up to a predetermined cap, resetting annually each June. This dual-directional buffer structure protects against the first 15% of market losses in either direction from the starting point.
How It Works
The fund uses a package of FLEX options on the S&P 500 to create its payoff profile, buying puts for downside protection while selling calls to fund the buffer. The 'dual directional' aspect means the 15% buffer works whether markets fall immediately or rise first then fall. Caps and buffers are set at inception and remain fixed until the next June reset date.
Key Features
- 15% buffer protects against losses from any direction during the outcome period
- Pre-defined upside cap typically ranges 10-15% depending on volatility at reset
- June annual reset provides predictable entry points for systematic protection
Risks
- Losses beyond 15% are unprotected - a 25% drop means you lose 10%
- Missing gains above the cap during strong rallies could mean significant underperformance
- Entering mid-period means inheriting an unfavorable cap/buffer ratio if markets have moved
Who Should Own This
Best for investors who want equity exposure but can't stomach normal volatility - think recent retirees or those within 5 years of a major expense. Works well as a 10-20% portfolio sleeve to reduce overall volatility without going to bonds. Timing entry at June reset maximizes the protection value.