TrueShares ConVex Protect ETF (PVEX)

The TrueShares ConVex Protect ETF (PVEX) holds a portfolio of large-cap US stocks while systematically selling call options against them — a strategy meant to dampen volatility and provide downside cushion at the cost of capping upside gains if stocks surge higher.

The strategy at the heart of PVEX is not new, though its implementation as an exchange-traded fund is relatively recent. A covered call strategy means owning a stock and simultaneously selling (or “writing”) a call option against that stock — the right for someone else to buy it at a specified higher price by a specified future date. If the stock climbs past that price, the seller of the call is obligated to part with the stock at that lower price, forfeiting the upside above the strike. In exchange, the seller collects the premium paid by the buyer of the call. That premium becomes a cushion: it reduces the loss if the stock falls.

TrueShares, the fund’s sponsor, launched PVEX with the explicit goal of using this mechanics to reduce volatility without abandoning equity exposure entirely. The fund holds a diversified portfolio of large-cap stocks — companies with strong market capitalizations, liquid shares, and options markets deep enough to trade reliably. Against that equity portfolio, the manager continuously sells call options, aiming to pocket the premiums and dampen the fund’s price swings.

The appeal of that structure to investors is intuitive. Equities offer growth over decades, but the ride is turbulent — drawdowns of 20, 30, or 40 percent happen roughly every decade, and many investors find that volatility unbearable. Bonds reduce volatility but sacrifice growth. A covered call strategy promises a middle path: keep the majority of equity returns, but trim the worst downturns, by sacrificing the very best upside years. In a market that rises 25 percent, PVEX might capture 15 percent, keeping 60 percent of the gain but smoothing the ride. In a market that falls 20 percent, PVEX might fall 12 percent, the loss cushioned by the call premiums collected.

How much cushion and how much upside sacrifice depends on the selection of strike prices — the prices at which the options are sold. If calls are sold at strikes far above the current stock price (out-of-the-money calls), they will rarely be exercised, and the fund captures more of the stock upside but collects less premium. If calls are sold at strikes close to the current price (near-the-money), they collect rich premiums but cap upside tightly. The fund must navigate that trade-off continuously, selecting strikes that balance the competing goals.

The mechanics also mean that PVEX’s structure commits it to harvesting short-term volatility. When markets are calm and implied volatility is low, the premiums collected from selling calls shrink, reducing the cushion. When markets spike higher or lower — precisely when volatility surges — the premiums on options swell, and PVEX collects more. This inverse relationship between volatility and performance means the fund tends to collect fatter premiums in panics but offer less cushion in gentle declines.

Over its existence, PVEX has attracted investors seeking a way to own US equities without the gut-wrenching 30 percent drawdowns that markets deliver roughly every business cycle. For some, the trade — giving up perhaps 3 to 5 percentage points of annual return in exchange for materially lower volatility and smaller peak-to-trough declines — is worth making. For others, that math is unappealing; they argue that equities held for decades should be left alone, that volatility is the price of growth, and that trying to engineer smooth returns usually fails.

The fund’s structure as an ETF allows it to trade intraday and to be held in any brokerage account; the covered call mechanics run continuously inside the fund, so the investor need not understand options to own shares. The expense ratio includes the cost of managing the strategy, which is not trivial because options demand constant attention and rebalancing.

PVEX also faces headwinds that all covered-call funds do. First, if the market enters a sustained bull market — stocks rising steadily without sharp pullbacks — the fund will persistently lag because it is constantly capping gains. Second, the strategy assumes that volatility will remain elevated enough to make premiums worth collecting. In unusually calm markets, the game shifts against it. Third, the strategy works only if the underlying stocks do not collapse; if a major holding fails or the market enters a true crisis, the cushion from call premiums, while helpful, may not be enough to offset the decline.

For investors with moderate risk tolerance, a long time horizon, and an explicit preference for dampened volatility over peak gains, PVEX offers a practical way to own large-cap US equities with a built-in volatility brake.