IT’S IMPERATIVE TO KNOW THE POTENTIAL OUTCOME parameters prior to purchasing a Buffer ETF. If you are purchasing a Buffer ETF intra-outcome period (any day other than the reset day), the outcome parameters will have changed from the reset date. Thankfully, the outcome parameters for all the offerings from Innovator, First Trust and Allianz are updated throughout each trading day on their websites.
Let’s look at the outcome parameters for a few Innovator U.S. Equity Power Buffer ETFs (15% downside protection) as shown on Innovator’s website on November 22, 2023. This should help you better understand how to make an intelligent intra-outcome purchase.
Potential Outcome Parameters – November 22, 2023
| Ticker | Asset -30% | Asset -20% | Asset -15% | Asset -10% | Asset -5% | Asset Flat | Asset +5% | Asset +10% | Asset +15% | Asset +20% | Asset +30% |
| PAUG | -16.38% | -6.55% | -1.63% | -1.35% | -1.35% | -1.35% | 3.23% | 8.15% | 13.06% | 13.66% | 13.66% |
| PSEP | -16.04% | -6.14% | -2.27% | -2.27% | -2.27% | -0.99% | 3.96% | 8.91% | 12.36% | 12.36% | 12.36% |
| PJUL | -15.83% | -5.88% | -3.31% | -3.31% | -3.31% | -0.48% | 4.50% | 9.47% | 10.50% | 10.50% | 10.50% |
The table compares the potential outcome parameters for Innovator’s U.S. Equity Power Buffer series (15% protection) for the July, August, and September series (PJUL, PAUG and PSEP). The reference asset is the S&P 500 (SPY).
When comparing these three Buffer ETFs, it’s of primary concern to first determine how much downside protection remains from the original 15% protection that was available on the most recent reset date. You can see that if the SPY’s return is break even (“Asset Flat”), for the remainder of the outcome period, PAUG will lose 1.35%, PSEP will decline 0.99% and PJUL will lose 0.48%.
Now, look at the column titled “Asset -15%.” This column shows you how much you would lose if SPY (“Asset”) declines 15% from the date of your purchase on November 22, 2023 to the end of the outcome period. PAUG offers the most protection if SPY were to decline 15% at the end of the outcome period – you would only lose 1.63%. PJUL would lose 3.31% if SPY was down 15% from the current price level at the end of the outcome period, and PSEP would decline 2.27%.
Note, obviously with a 15% buffer, you don’t have protection beyond the first 15% loss, so if the reference asset lost 20%, for example, during the remainder of the outcome period, PAUG would lose 6.55%, PSEP would drop 6.14%, and PJUL would decline 5.88%.
On the positive side of the ledger, to the right of the column titled “Asset Flat,” you can see how the Buffer ETFs will perform if the reference asset appreciates from November 22 to the end of the outcome period. For example, if SPY is up 10%, PAUG would gain 8.15%, PSEP 8.91%, and PJUL 9.47%. The upside performance for all three ETFs is capped around the 15% return level of the reference asset. If SPY is up 15% during the remaining outcome period, PAUG would gain 13.06%, PSEP 12.36%, and PJUL 10.5%.
Any gains of the reference asset beyond 15% are effectively forfeited (upside is capped during the outcome period). For example, SPY could jump 30%, but your return would be capped out at 13.66% for PAUG. This is the potential price you pay for having downside protection.
Potential Outcome Parameters – November 22, 2023
| Ticker | Reference Asset | ETF Return | Asset Return | Return Difference | Asset Return to Cap | Remaining Cap | Downside Before Buffer | Remaining Days |
| PAUG | SPY | 0.57% | -0.34% | 0.91% | 15.61% | 13.66% | -1.36% | 252 |
| PSEP | SPY | 1.52% | 1.31% | 0.21% | 13.48% | 12.36% | -2.29% | 283 |
| PJUL | SPY | 2.60% | 2.93% | -0.32% | 11.03% | 10.50% | -3.33% | 221 |
The columns in the table provide more important information to consider prior to making an intra-outcome Buffer ETF purchase. Let’s define each column.
“Ticker” refers to the trading symbol of the Buffer ETF.
“Reference Asset” refers to the underlying asset the Buffer ETF will track during the outcome period.
“ETF Return” shows the percentage the Buffer ETF has made or lost since the most recent reset date.
“Asset Return” shows the percentage return of the underlying asset, SPY, since the most recent reset date.
“Return Difference” is the percentage difference in performance between the underlying asset and the Buffer ETF.
“Asset Return to Cap” refers to how much the underlying asset, SPY, would have to appreciate to reach the upside cap.
“Remaining Cap” refers to the maximum amount of percentage gain the Buffer ETF owner could make in the remaining outcome period, before you reach the upside cap.
“Downside Before Buffer” refers to how much an investor could lose (percentage loss), from the current price level of the Buffer ETF, before the Buffer ETF’s “protection” kicks in. Remember, if you own a Buffer ETF that is showing a positive return from the prior reset date, or you are considering buying a Buffer ETF that already shows a gain in the new outcome period, that gain is unprotected. If the Buffer ETF subsequently declines, you could lose the gain before the buffer actually helps you (“Downside Before Buffer”). For example, if the Buffer ETFs decline during the remainder of the outcome period, you could lose 1.36% in PAUG, 2.29% in PSEP, and 3.33% in PJUL before the 15% buffer protection comes into play.
“Remaining Days” is the number of days remaining before the next reset date.
Summary
When comparing the potential outcome parameters for the three Innovator U.S. Equity Power Buffer ETFs, PAUG, PSEP and PJUL on November 22, 2023, PAUG is probably the most attractive. It has 252 days remaining in the outcome period, which is much less than a newly reset Buffer that has 365 days remaining to the next reset date. Its upside cap at 13.66% is the highest of the three Buffer ETFs, and it also provides the most protection if the reference asset were to decline by 15%. It would only lose 1.63% while the other two would decline 2.27% and 3.31% respectively. Overall, PAUG offers an attractive risk-reward profile with a relatively short outcome period, which makes it a potentially compelling intra-outcome purchase.