This is a journey into investing in Calamos ETF, (NYSEARCA:CPSJ). This fund came to market July 1, 2024, and seeks to provide results before fees that will match the positive price return of the SPY 500 ETF trust with a cap of 9.45% on the upside. Its job is also to protect you from 100% of any negative price return, once again after fees and expenses, which I will explain below. This ETF will reset roughly every 365 days with a new cap. If you buy this ETF in a taxable account, it does offer the possible advantage of a LTCG for positive gains held more than 1 yr.
This article is an outgrowth of my own research and actual investment in the above Calamos S&P 500 Struct Alt Prot EFT – July.
Prior to buying CPSJ on July 1 st of this year, I read a couple of Seeking Alpha articles on this subject:
CPSM: New Buffer ETF From Calamos | Seeking Alpha by author @Binary Tree Analytics
CPSM ETF: Limited Upside Coupled With 100% Loss Protection | Seeking Alpha by author @Retired Investor
While both the above articles “cover the topic” in a decent manner, they left me wanting more. For instance:
Can you buy the ETF at the actual “opening price”? Can you buy it at any time after the initial “opening day”, and can you sell it at any time as well? If you sell it at the approximate one-year holding period after holding for 365 days, this will be a short-term capital gain. What is the process to hold it longer to obtain LTCG status? If you continue to hold the ETF beyond one year, does the ticker symbol stay the same?
I will attempt to answer all of the above questions through both conversations with the Calamos representative and my own personal experience of investing in CPSJ.
Background
So far, as of Aug 1 st of this year, Calamos has issued just five of these Structured Protection ETFs, as they call them.
They are:
Calamos S&P 500 Struct Alt Prot ETF-May (CPSM)
Calamos Nasdaq-100 Struct AltProtETF-Jun (CPNJ)
Calamos Rus 2000 Struct Alt Prot ETF-Jul (CPRJ)
Calamos S&P 500 Struct Alt Prot ETF-Jul (CPSJ)
Calamos S&P 500 Struct Alt Prot ETF-Jul (CPSA)
In this article, I am focusing on CPSJ, because that is the one I bought on July 1st. The investment sheet looks like this:
So, the standard procedure is to buy this 1-year outcome ETF on its inception date, or any of the subsequent renewal dates. For CPSJ this date was July 1st, however first you need to know the “initial value of the fund price.” In this case, Calamos suggests it will be available in the evening after market close of the last trading day before the opening day. In this case the opening day of the fund was a Monday, so I essentially had the weekend to decide how to price my pre-market limit order, since I did not want to overpay for the ETF. This is what was available Friday evening:
Summary
First question was “Can you buy the ETF at the actual “opening price”?
The Calamos representative suggested a three to four cent bid/ask spread on the $23.96 price was what had been most common on other issues, so I set a couple of limit orders before Monday at $24 and $23.95. At the open, the SPY opened up and orders were being filled above $24 for most of the morning, but I finally got my order filled mid-morning. My second order was never filled. In reviewing the above question with Calamos, I believe I might have been able to get a $23.96 or lower price had the market opened down. So, the answer to the above question is that it is possible, but if you want to own these products, I would price your limit orders tight around the initial fund price. One final note on this question is if you own any of these Calamos buffered ETFs beyond the 1-yr outcome period you will absolutely get the initial Value price during the following period as your money will essentially be “rolled into” the next 1-yr outcome period at the ending price of the previous period.
The next question was “Can you buy or sell CPSJ at any time during the outcome period? Because this is a market traded ETF the answer is yes you can buy or sell at any time, but to understand what you are buying and selling you must understand the underlying assets, which are options. The investments of CPSJ look like this as of mid-July:
Besides a small amount of cash, these holdings consist of equal shares of:
A large in the money SPY Call at $.76 which expires June 30, 2025. The same number of shares of a SPY Covered Call priced at $595.70. Finally, also equal shares of an at the money Put at $544.27.
All three of these options are European options bought on 7/1/24 which expire 1 year later on 6/30/25. Their purpose is to cap the upside and limit your downside.
One thing to note here if you hold these in a taxable account, is that if you sell on the expiration date of June 30th 2025, you will have created a short-term capital gain or loss for yourself. If you have a loss, it doesn’t matter, but if you have a gain, I suggest you hold it a couple of days after expiration to capture the LTCG. If you have held the position for more than 1 year, it will not be a problem to sell at the end of what’s called the Outcome Period.
To finish up with question #3 and #4, the process to hold this ETF beyond the 1-yr outcome period is that nothing special is required on your part, as the investment will continue to be called CPSJ, so it is no different than holding any Stock or fund. You own CPSJ until you decide to sell it.
So, what is all the above information good for? We can use it to calculate the ending Cap price and how much is possible to make after expenses on this investment at the end of 1 year, as well as how much can be lost if the market goes down.
Calculating Gain or Loss
Now, some may say that Calamos advertises 100% downside protection, but if you read the fine print, you will understand this is after expenses. Below is an illustration of my maximum gain along with my maximum loss, at least on paper, based on a product that has not been in existence for even one year yet.
To calculate the future value at the end of the Outcome period after the Calamos expenses, we need both the initial price ($23.96) and the Cap percentage after expenses, which is 8.76% as shown on the initial pricing sheet above. Using the Excel formula =FV(rate, nper, pmt, [pv], [type]) which translates to =FV(8.76%,1,0,23.96,0), or $26.06 after expenses.
Now, the next part is very important:
The maximum final price of $26.06 is always the same, no matter what price you paid for the ETF. Since I paid 4 cents more per share for my shares, my gain will be slightly less than the 8.76% advertised, or about 8.58%. The price where this happens is when the SPY Covered Call priced at $595.70 is in the money at the end of the Outcome Period, or in other words, if the SPY closes at $595.70 or greater on June 30th of 2025. If you bought in at a price higher than my $24 you will earn less, and if you were able to buy in lower sometime between now and the expiration date you could earn more than my 8.58%.
The maximum loss price is based on the initial price ($23.96) less the expense ratio of .69%. This would be $23.79. In my case, with a $24 base, my maximum downside protection is 99.13%. If you have a different base, you will obviously have a potential different loss.
Summary and Additional Information
Today, Aug 1st, as I finish this up, I opened a new position in the Calamos ETF CPSA. It was priced at $24.25, so I put a ladder of opening limit orders around $24.25. What happened was the market opened up about 1% and people were buying these around $24.32. I had limit orders separated by 1 cent from $24.28 to $24.21, but I wasn’t going to pay up for the ETF, so I just left it play out. The market turned down later in the day and as it turned out, all my orders were filled with an average price of $24.24, slightly below the initial value of $24.25.
This really confirms what logic and Calamos were telling me, in that how you do is really dependent on market conditions on or close to the opening day. If you can’t get in very near the initial value which sets the market pricing, you should just wait for a better starting month, as paying up only sets you up to lose more or gain less during the Outcome Period.
Conclusion
This product is a complex product which in my opinion has limited uses. It is most effectively used in a taxable account because of the added benefit of Long-term Capital Gains treatment if held over 1 year. Also, if you sell at a loss, you could offset an equal number of gains against this loss.
Each person must understand their needs and be able to choose the strategy that best fits them. Just because something works for one person does not make it suitable for the next. Often, money may be tight during retirement, and which strategy you choose can make a difference. However, if the strategy is volatile beyond your tolerance level, which in itself can sometimes make that strategy unsuitable for you.
You also must realize that past performance is no guarantee of the future, and in that regard, none of the information presented here is past performance as these products have yet to be in existence for one year. The information provided here is for educational purposes only. It is not intended to replace your due diligence or professional financial advice.
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