Buffer ETF calculator
Choose an index return, a buffer and a cap to see how a standard buffer shapes the outcome over one full outcome period.
Try it
See how a buffer and a cap shape the outcome
Hypothetical illustration of a single outcome period with a standard buffer and cap, before fees and expenses, held for the full period. Not the terms or performance of any fund. A buffer reduces, but does not eliminate, losses.
How it works
A buffer ETF uses options to seek to absorb a set share of an index's losses over an outcome period, the buffer, and gives up gains above a set level, the cap.
Formula. If the index rises, the outcome is the lower of the index return and the cap. If it falls, the buffer absorbs losses up to its size and the investor bears any loss beyond it: outcome = minus the larger of (index loss minus buffer) and zero.
Worked example. With a 10% buffer and a 12% cap: an index loss of 20% becomes a loss of 10%; an index loss of 8% becomes 0%; an index gain of 20% becomes 12%. Hypothetical, before fees and expenses.
Assumptions. The position is bought on the first day of the outcome period and held to the last day. Partway through the period the fund's price can differ from these figures; the mid-period calculator shows what changes.
FAQ
Frequently asked questions
How do you calculate a buffer ETF return?
For a gain, take the lower of the index return and the cap. For a loss, subtract the buffer from the index loss; if the result is below zero the outcome is zero, otherwise the investor bears the remainder.
What happens if the index falls more than the buffer?
The buffer absorbs losses up to its size and the investor bears the rest. With a 10% buffer, a 25% index loss becomes about a 15% loss before fees.
Why is there a cap?
Selling upside through call options helps pay for the put options that create the buffer. Caps are reset at the start of each outcome period based on market conditions.
Does the buffer apply if I sell early?
The stated buffer and cap apply over the full outcome period. A fund sold before the period ends trades at its market price, which may be higher or lower than the payoff shown here.
Learn more
- How Do Buffer ETFs Work?
- Buffer ETF Terms Explained: Buffer, Cap, Participation Rate, Outcome Period and Reset
- What Drives a Buffer ETF’s Cap?
- Buffer ETFs Explained
- All ETF calculators and tools
Embed this tool
You can add this tool to your own website free of charge. Copy the code below; the tool stays up to date and links back to this page.
For educational purposes only. This material is not investment, legal or tax advice, and it is not a recommendation or offer to buy or sell any security. Figures from third-party sources are believed to be reliable as of the dates shown but are not guaranteed. Investments involve risk, including possible loss of principal.