Innovator Equity Defined Protection ETF - 1 Yr May (ZMAY) seeks to provide defined downside protection while participating in upside potential of the SPDR S&P 500 ETF Trust (SPY) over a specific one-year outcome period ending in May. This defined outcome ETF uses options strategies to buffer against the first 15% of losses while capping gains at a predetermined level.
How It Works
ZMAY employs a sophisticated options overlay strategy that purchases protective put options to limit downside risk while selling call options to fund the protection and define upside participation. The fund resets annually each May, establishing new protection and cap levels based on current market conditions. Holdings consist primarily of SPY shares combined with FLEX options contracts that create the defined outcome profile. The strategy is passively managed within the predetermined risk-return parameters.
Key Features
- Provides 15% downside buffer protection, meaning investors absorb no losses until SPY declines more than 15% during the outcome period
- Upside participation capped at predetermined level set at inception, typically 8-12% based on prevailing options pricing and interest rates
- Annual reset in May allows investors to lock in new protection and cap levels, adapting to changing market conditions
Risks
- This ETF can lose value significantly if SPY declines more than 15% during the outcome period, with losses beyond the buffer magnified dollar-for-dollar
- Upside gains are strictly capped regardless of how much SPY appreciates, potentially missing substantial bull market returns above the predetermined ceiling
- Early exit before May outcome period ends eliminates defined protection features, exposing investors to full market volatility and potential options-related losses
Who Should Own This
Best suited for conservative investors with 1-year investment horizons seeking equity exposure with defined downside protection. Requires low-to-medium risk tolerance and works as a satellite holding (5-15% allocation) for those prioritizing capital preservation over maximum growth. Ideal for pre-retirees or investors wanting equity participation with known worst-case scenarios.