00:00Matt, you're going to have to explain it to me like I don't know anything about ETFs or
00:04call options. What is an auto callable? Yeah, for sure. Eric, you did great. Yeah,
00:08good overview. If we have to dumb down what an auto callable is, you can think of it a lot
00:13like
00:13a bond that's tied to the equity markets. This is derivative income. It fits squarely into that
00:19category. We are tying equity markets to your income payment, and you're going to collect that
00:25income. You're going to get that 14.3% as long as the equity markets are not down too far
00:31below a set
00:31barrier is what the term you would want to know here is. Let's talk about that barrier. So I own
00:37this. Where do where do things go wrong? OK, I get my coupon. It's nice and it's big. But when
00:43would I
00:43not get that? It's a 40% drawdown in a month. Then you're in trouble. Yeah, that's right. So this
00:49is a
00:49derivative income product. If you look at covered calls, you're selling off your upside to collect
00:54an income payment for that. You hope the market doesn't go down too far here. This is like a long
00:59dated put writing strategy where you're collecting an income, selling off your upside. These are long
01:05dated put instruments, and you're going to get paid that as long as the market you're tied to is not
01:10down by 40%. We ladder that out 52 or more times, a weekly ladder that diversifies out your risk. So
01:18I
01:18know that's where it gets a little complicated, but you're getting a ladder portfolio of a derivative
01:22income strategy now, very diversified. So you're diversifying the maturity and the coupon risk.
01:27What happens if the market does fall 40% in a month? Sure. So if the market falls 40%
01:34in a month,
01:34or more, then the coupon will turn off for one of your yield notes. If you have 52 or more,
01:41think of how often the market has fallen significantly over the course of several months.
01:46Maybe you lose coupon on a few, but you're not losing it on the whole basket. And so that's the
01:51point.
01:51We're taking this $150 billion structured note market. Autocallables makes up the largest slice
01:58of the structured note space. We have a lot of advisors who are using structured products. They're
02:03using notes, and they were asking for a delivery mechanism for autocalls in the ETF. That's what we
02:08brought to the market. So if you look at how you get yield in this market, right? You've got bonds,
02:15which are like 4%. Stocks are like 2%, 3%. Unless you go into like utilities or whatever.
02:21Then you've got Jepi, right? That was the original boomer candy. Yes. That gives you like 9%.
02:26This is 14%. So this is like next level boomer candy. Sure. And it's the fastest growing segment
02:32of that. I guess my question is, where do you go from here? Is 14% like what I should
02:40expect to
02:41have good yield, but also be safe? Or are they going to get crazy and give you like 30, 40,
02:46and then you got to worry that it's drawdowns or less? I'm sure there's going to be issuers that go
02:50for the crazy. That's not Calamos. Our goal with the first autocallable ETF was to deliver high,
02:55stable, and tax-efficient income, where about 100% of this income is treated as return of capital,
03:02tax-deferred income that you'll pay long-term capital gains on eventually. But how we delivered
03:08this is 14% income, again, high stable income. And the goal, the reason we were able to do that
03:15is by diversifying that out, structuring these notes in a way that would have paid you historically
03:20in a really highly reliable fashion. So the benchmark that you would compare yourself to,
03:24the one that makes the most sense is the S&P 500, SPY? Yes, SPY design. If you are comfortable
03:30with equity market-like risk, S&P 500-like risk, you can turn that in for a high, stable income.
03:36If you look at our distributions, it's been about 31, 32 cents per share, going back to since we
03:42launched. Very stable income. So you're out there talking to an advisor in Kentucky, right? And
03:47they're like, I get Jeppy, right? I get a call option. But then you start explaining autocallables.
03:53Yeah. Is education a problem? Or does the yield just, they're like, well, I trust Calamos. I'm in.
03:59Right. Or does the advisor kind of balk because then they don't, they might not be able to explain
04:03to the client. How's that going? Yeah. Education is key. It's not the problem,
04:07but it is something we were really focused on. We want people to understand the risk they're taking
04:11on. You know, if you look at some covered calls, you might have NAV over time or NAV decay over
04:15time.
04:16What we have done is we've traded equity market tail risk for this high, stable coupon. We did the
04:22trillions podcast about a year ago. You're really early to the auto call game. So congrats on that.
04:27This is going to be a very large space. I think we'll get to a hundred billion over the next
04:32five
04:32to 10 years. It is that large. Look at what we do with the buffers. You know, we took a
04:36$60 billion
04:37market. Now we have 60 billion in ETFs. We've got the same opportunity here.
04:41So when I look at the fact sheet for your fund, JP Morgan comes up a lot. What's the role
04:47that JP
04:48Morgan plays in these funds? Oh, sure. So JP Morgan is our swap counterparty. We also have an index
04:52provider in Mercube, a very prominent index provider in the market around the world. They do
04:57a lot with structured notes. So Mercube is the index provider. We trade that index, which houses all 52
05:04or more auto callables. We trade that with JP Morgan. One of the benefits here is it largely eliminates
05:10counterparty risk. If you were to buy a note, we all remember, you know, maybe Lehman 08. If you buy
05:16a note
05:16today, you have a subordinated debt instrument. If you buy this in the ETF on swap, we can largely
05:22eliminate that counterparty risk because now you have a collateralized swap. Your money sits at the
05:27custodian. That is your money. It takes away a lot of that risk. Yeah. So let me ask you one
05:33quick
05:33question. There's now a bunch of auto callables. Some have the word barrier in there, yada, yada. So
05:38there's a hundred. If I'm an investor and I'm looking to pick one out, what should I look for? Like,
05:43what are one or two metrics that like should be a red flag or should I just rely on the
05:47brand?
05:48Yeah, great question. You know, Calamos has been around for 50 years. So there's obviously some
05:52brand recognition there from a deliverable perspective. We wrote a blog post. You can
05:57check out on what to look for in auto callables. You want to look at the maturity of the underlying
06:02auto calls. With a covered call, you see people going short date on the tenor because they want to
06:07give you more income. That creates more risk. Here you want to go long. You want to give the market
06:12time to recover from a drawdown. So longer tenor, deep barriers. Look at the index that
06:18we're tying to. How many times has it paid its coupon? What is the history? You can see
06:22all of that on our website. You mentioned Jeppy before Boomer Candy and how this is kind of
06:26Boomer Candy, you know, times five or whatever. Does this mean that? This is like Pop Rocks.
06:31Does this replace Jeppy or JeffQ Pop Rocks? I like that. Maybe. I think with Jeppy, again,
06:38it's easy to understand and people are willing to they like that downside buffer. In this case,
06:43there is no buffer. But will the market really go down 40 percent in a month? And there's barriers,
06:48right? Yeah. I think that's the issue and why Jeppy might still be chosen is for more conservative
06:53investors. Well, I think what you're seeing right now is a framework for non-listed option strategies
06:59to make their way into the ETF world. What did you have over the last ten years? We're tied to
07:03S&P,
07:04tied to NASDAQ, single stocks. Those are listed instruments. Now we have a framework through
07:10the development of CHI where we can take non-listed options and tie income to that. And so that is
07:16the massive growth that you're going to see over the next several years here.
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