Simplify Stable Income ETF Can be Viewed as a Volatility Dampening Tool Amidst Increasing Fed’s Policy Uncertainty

We clearly see that markets are moving towards elevated volatility, which sits exactly in the very body of USD and is connected to the growing Fed’s policy uncertainty. This kind of volatility is the worst possible to investors, since it feeds itself internally while possessing low fundamental predictability. In order to tackle it, one should see some USD-related instruments containing some sort of “volatility dampening” feature. Is that a fantasy? Not really so.

What is BUCK? Basically, it's a ticker of an ETF that holds Treasury bills or TIPS and simultaneously sells option spreads using the bonds as collateral. Its returns exceed those of just bare Treasury bills and isn't much riskier, so it compares favorably to Treasury bills alone.

The Simplify Stable Income ETF offers a lower-risk option, making it attractive to conservative investors who want to lower risk metrics of their equity-based portfolios. The fund currently only holds Treasury bonds and has an open options position on bond futures. The most attractive feature of BUCK is of course its ability to remain stable, but stability cannot be absolute of course. This investment is designed to handle short-term core bonds and core cash holdings, so we expect BUCK's volatility to be below 4%.

Based on historical performance, however, we can clearly see this in the rolling volatility, which, in fact, never peaked above 3.25% and is averaging just under 2%, which is almost unbelievable. It’s worth noting that put spreads often result in traders accidentally entering short positions, therefore this instrument could be nicely used while mixed with high-risk high-return equities names.