The Illusion of Asymmetry in Options-Based Buffered, Overlay, and Defined Outcome ETFs

Many investments are marketed as delivering equity-like returns with less downside risk. They often carry labels like “Buffered,” “Defined Outcome,” or “Overlay” strategies. These products claim to offer protection when markets fall—while still participating in the upside.

To the average investor, that sounds like the definition of asymmetry: limited downside, unlimited upside.

But it's not.

AQR's recent paper, Rebuffed: A Closer Look at Options-Based Strategies (March 2025), dissects this narrative. The analysis focuses on 99 funds with at least five years of history in the Morningstar categories for “Options Trading,” “Derivative Income,” and “Defined Outcome.”

The findings are clear: most of these strategies fail to deliver either compelling returns or reliable downside protection.

What the Data Shows

0 out of 99 funds outperformed the S&P 500.
86% did have smaller drawdowns than the market—but only when compared to 100% equity exposure.
When compared to a simple mix of equities plus T-bills (with the same beta), 81% of funds had worse drawdowns, and more than two-thirds delivered lower returns with more risk.

This tells us one thing: the downside protection is often just lower equity exposure—not true protection.

Options Complexity ≠ Asymmetry

Many of these investment funds use put options for downside insurance and fund the cost by selling calls or other options.

But:

Buying puts is expensive. They're usually overpriced because of embedded fear premiums.
Selling calls caps upside—destroying the possibility of exponential gains.
The combination produces a profile that is symmetrical at best, but more often negatively asymmetric—you’re limiting your upside and still exposed to loss.

This is the opposite of how we define asymmetric payoffs.

Structural Flaws in Options-Based Funds

These funds don’t just fail in practice—they fail in theory.

Here’s why:

Options are time-bound. A drawdown that unfolds over two months may not trigger monthly put protection.
Options are expensive. Consistently buying puts reduces long-term return potential—especially when they don’t pay off.
Fees are high. Complex funds come with higher management fees, often eating into any benefit they provide.
Transparency is low. These funds use sophisticated combinations of options that obscure their actual exposures and risks.

In short, they may sound like they're engineered for asymmetry, but they're not structured that way.

A Better Approach to Asymmetry

At Shell Capital, we believe true asymmetry means structuring positions with:

Predefined downside risk (capped losses),
Exponential or uncapped upside, and
Repeatability over time.

That’s not what buffered funds deliver.

Instead, they offer a false sense of safety—at a premium cost. We prefer to build asymmetry intentionally through position sizing, hedging, and selective use of options where the risk/reward profile is truly tilted in our favor.

The Bottom Line

Options-based funds are a marketing success and an investor disappointment. They promise protection, but the data—and the theory—don’t support the results.

If your goal is asymmetric returns, don’t settle for products that cap your upside and fail to deliver real protection.