DLNV provides partial downside protection against S&P 500 losses while allowing upside participation to a cap, resetting annually each November. The fund uses options to create asymmetric exposure where moderate losses are absorbed but extreme crashes and gains are limited.
How It Works
The fund constructs a options collar using SPY options expiring each November — buying puts for downside protection, selling puts at lower strikes to fund the hedge, and selling calls to cap upside. This 'dual directional' structure typically protects against the first 10-15% of losses while capping gains around 15-20%, with exact levels set at each annual reset based on market conditions.
Key Features
- Downside buffer absorbs moderate losses (typically 10-15%) before you feel market pain
- Annual November reset locks in new cap/buffer levels based on prevailing volatility
- More cost-efficient than buying protection directly due to premium collection from sold options
Risks
- Losses beyond the buffer hit dollar-for-dollar — a 30% crash means you lose ~15-20%
- Upside cap means missing rallies above ~15-20%, devastating in strong bull markets
- Mid-period buyers face asymmetric outcomes — less buffer remaining but full downside exposure
Who Should Own This
Best for nervous equity investors approaching retirement who can stomach missing some upside to avoid the first chunk of a downturn. Works as a bond alternative in low-yield environments or as 10-20% of equity allocation for those scarred by 2008. Terrible for anyone under 40 who should be praying for crashes to buy cheap.