Short-term levered plays include covered call and risk-reversal strategies. issuers and advisors may struggle to keep up with continuous product growth and change. "The toolkit has expanded immensely over the last couple years, and it's going to continue to grow," says BNY Mellon's head of ETFs.

Investors can hold defensive, risk-averse positions using leveraged products. Covered calls grant protection to clients looking to minimize losses. Liquidity providers and asset servicers may experience difficulties with product expansion, McOrmond says. "Really understand what you're owning and explain that to investors or even advisors," he says.

Short-term levered plays better define outcomes, but in turn investors may miss out on gains. McOrmond: "If you sell options, and the market moves against you, you'll be protected — but you're going to just reduce your upside [potential]."

In July, the Nasdaq jumped 12%, and the S&P 500 is up more than 8%. The defensive strategy uses ladders to preserve capital, and option collars "buffer" the investment to mitigate losses. The First Trust Cboe Vest Fund of Buffer ETFs was designed to supply capital appreciation and limit downside risk for investors.
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