Cboe Vest Large Cap Buffered 10 Portfolio, Series 36
Seeking a Balance of Upside Performance Potential With a Downside Buffer
Growth potential is a common goal for equity investors, but often, market drawdowns, that are difficult to predict, can have a significant impact on investment returns. The Cboe Vest Large Cap Buffered 10 Portfolio is designed to provide a balance of performance, subject to a cap, with a downside buffer, using a disciplined option strategy. The portfolio invest in FLexible
EXchange® Options (“FLEX Options”) based on the price performance of shares of the SPDR® S&P 500® ETF Trust (“SPY” or “reference asset”), an exchange-traded fund (ETF) that is designed to track the
returns of the S&P 500 Index. The portfolios
seeks to meet the following goals:
Target Outcome UITs® are unit investment trusts (UITs) which are pooled investment vehicles with static portfolios that are held for a predetermined amount of time. The ability of a portfolio to
provide returns with a capped upside and defined buffer against losses is dependent on unit holders purchasing units on the initial date of deposit and holding them until the
portfolio's termination date. The intended return for units purchased on a portfolio’s initial date of deposit and held for the life of the portfolio is based on the performance of the reference asset and
the value of the FLEX Options on the FLEX Option expiration date. The intended return is subject to a capped amount per unit and may represent a return that is less than the performance of the reference
asset. Even if there are significant increases in the value of the reference asset, the amount received is capped.
Minimize Potential Losses with A Buffer
Losses can have a greater impact on investments than gains because the money remaining after the loss must work harder to get back to its original level. The math of percentages shows that as losses
get larger, the return necessary to recover to the break-even point increases at a much faster rate. A loss of 10% necessitates an 11% gain to recover. Increase that loss to 25%, and it takes a 33% gain to
get back to break-even. A 50% loss requires a 100% gain to get back to where the investment value started. The Cboe Vest Large Cap Buffered 10 Portfolio may encourage investors to stay invested by providing
a defined buffer against potential losses.
Who Might Be Interested In Buffered UITs?
Investors Saving for Life’s Milestones
- Buffered UITs give investors the ability to prioritize a limited buffer against downside losses (if held for the full Target Outcome Period) ahead of potential upside returns.
Investors Reluctant to Fully Participate in Equity Markets
- Buffered UITs may be attractive to investors who are looking for the ability to be invested in the equity markets without assuming the full downside risk of investing in equities. The portfolios seek to
limit the uncertainty of equity market exposure over the term of the trust by combining a downside buffer with upside growth potential, to the predetermined cap levels.
Investors With a Moderately Bullish View on Market Returns
- Buffered UITs may appeal to investors who anticipate moderate market returns and are willing to forgo some potential upside, while gaining a buffer on the downside.
Investors Looking for a Complement to Their Equity Holdings
- Buffered UITs are an agile tool for risk management while participating in the upside potential of the reference asset up to the capped amount.
The Cboe Vest Large Cap Buffered 10 Portfolio is designed to help equity investors maintain a limited buffer in down markets, while taking advantage of growth opportunities (to a cap) in up markets. This portfolio can potentially fit in two
places in an investor’s portfolio:
- Low Risk/Hedged Equity: A common way to reduce downside risk is to reduce allocation to equities; however, this creates the risk of missing out on potential upside. The portfolio offers an alternative
approach that seeks to deliver some benefits of upside from equities with reduced downside risk, allowing investors to stay invested.
- Alternatives: The portfolio's risk/return characteristics provide a limited downside buffer while capping some upside potential, similar to alternative investments such as hedge funds. As a result, the
portfolio may be used as potentially cost-competitive replacements to hedge funds.**
**It is important to note that there are differences between the investment objectives, risks, liquidity and tax treatment of the FLEX Options in which the portfolio invests versus the securities that comprise hedge funds. UITs
are unmanaged portfolios held for a specified period of time. Hedge funds are actively managed. Hedge funds pool money from investors and invest in securities or other types of investments. Hedge funds generally have
more flexibility than UITs to pursue investments and strategies that may increase the risk of investment losses. Hedge funds are limited to wealthier investors who can afford the higher fees and risks of hedge fund investing
and institutional investors.
|Not FDIC Insured Not Bank Guaranteed May Lose Value
You should consider the portfolio's investment objectives, risks, and
charges and expenses carefully before investing. Contact your financial professional
or call First Trust Portfolios, L.P. at 1.800.621.1675 to request a prospectus,
which contains this and other information about the portfolio. Read it carefully
before you invest.
An investment in an unmanaged unit investment trust should be made with
an understanding of the risks involved with owning FLEX Options based on an reference asset.
This portfolio has characteristics unlike many other traditional investment products and may not be
appropriate for all investors.
FLEX Options are European style options, which are exercisable at the strike price only on the FLEX Option
expiration date. The FLEX Options held by a portfolio give the option holder the right to buy or sell the
reference asset on the FLEX Option expiration date at the strike price. Prior to their expiration on the FLEX
Option expiration date, the value of the FLEX Options is determined as discussed under “The Value of the
Securities” section of the full prospectus. The value of the FLEX Options prior to their expiration on the FLEX
Option expiration date may vary because of factors other than fluctuations in the value of the reference asset.
The value of FLEX Options will be affected by changes in the value of the reference asset, the underlying
index and its underlying securities, a change in interest rates, a change in the expected dividend rate of
the reference asset, a change in the actual and perceived volatility of the stock market and the underlying
index and the remaining time to expiration. Additionally, the value of the FLEX Options does not increase
or decrease at the same rate as the reference asset, the underlying index or its underlying securities due to
“tracking error” as described in more detail in the full prospectus (although they generally move in the same
Options are subject to various risks including that their value may be adversely affected if the
market for the option becomes less liquid or smaller. In addition, options will be affected by changes in the
value and dividend rates of the stock subject to the option, a change in interest rates, a change in the actual
and perceived volatility of the stock market and the common stock and the remaining time to expiration.
FLEX Options represent indirect positions in an reference asset and are subject to risks associated with changes
in value as the price of the reference asset rises or falls. The investment in the FLEX Options includes the risk that
their value may be affected by market risk related to the reference asset, the underlying index and the value
of the securities in the underlying index held by the reference asset. Market risk is the risk that the value of
the securities will fluctuate. Market value fluctuates in response to various factors. These can include changes
in interest rates, inflation, the financial condition of a security’s issuer, perceptions of an issuer, ratings on a
bond, or political or economic events affecting the issuer. While the FLEX Options are individually related to the
reference asset, the return on the FLEX Options depends on the price of the reference asset at the close of the
NYSE on the FLEX Option expiration date and will be substantially determined by market conditions and the
reference asset and the value of the securities comprising the reference asset as of such time.
ETFs are subject to various risks, including management’s ability to meet the fund’s investment objective,
and to manage the fund’s portfolio when the underlying securities are redeemed or sold, during periods of
market turmoil and as investors’ perceptions regarding ETFs or their underlying investments change. Unlike
open-end funds, which trade at prices based on a current determination of the fund’s net asset value, ETFs
frequently trade at a discount from their net asset value in the secondary market. Certain of the ETFs may
employ the use of leverage, which increases the volatility of such funds.
ETFs that invest in common stocks are subject to certain risks, such as an economic recession and the possible
deterioration of either the financial condition of the issuers of the equity securities or the general condition
of the stock market.
A portfolio may experience substantial downside from the FLEX Options and option contract positions may
expire worthless. A portfolio does not provide principal and you may not receive a return of the capital
you invest. You may experience significant losses on your investment up to an almost total loss on your
investment if the value of the reference asset decreases by greater than a specified level from the initial
reference asset level. A portfolio might not achieve its objective in certain circumstances. You may realize a
return (including a loss) that is higher or lower than the intended returns as a result of redeeming units prior
to the portfolio’s mandatory termination date and in various circumstances, including where FLEX Options
are otherwise liquidated by the portfolio prior to their expiration or maturity, if the portfolio is unable to
maintain the proportional relationship of the FLEX Options in the portfolio or increases in potential expenses
of the portfolio above estimated levels. A portfolio’s investment strategy is designed to achieve its investment
objective over the life of the portfolio. An increase in the value of the written FLEX Options reduces the value
of your units. As the value of the written FLEX Options increases, the written FLEX Options have a more
negative impact on the value of your units. You should note that even if the value of the reference asset does
not change, if the value of a written FLEX Option increases (for example, based on increased volatility of the
underlying index) your units will lose value. After the premium is received on the written FLEX options, the
written FLEX Options will reduce the value of your units.
Credit risk is the risk that a security’s issuer, guarantor or counterparty of a security is unable or unwilling
to make dividend, interest or principal payments when due and the related risk that the value of a security
may decline because of concerns about the issuer’s ability or willingness to make such payments. The OCC is
guarantor and central counterparty with respect to the FLEX Options. As a result, the ability of a portfolio to
meet its objective depends on the OCC being able to meet its obligations.
Liquidity risk is the risk that the value of a security will fall if trading in the security is limited or absent.
No one can guarantee that a liquid trading market will exist for the securities. The FLEX Options are listed
on the CBOE; however, no one can guarantee that a liquid secondary trading market will exist for the FLEX
Options. Trading in the FLEX Options may be less deep and liquid than certain other securities. The FLEX
Options may be less liquid than certain non-customized options. In a less liquid market for the FLEX Options,
liquidating the FLEX Options may require the payment of a premium (for written FLEX Options) or acceptance
of a discounted price (for purchased FLEX Options) and may take longer to complete. In a less liquid market
for the FLEX Options, the liquidation of a large number of options may more significantly impact the price. A
less liquid trading market may adversely impact the value of the FLEX Options and your units and result in a
portfolio being unable to achieve its investment objective.
As the use of Internet technology has become more prevalent in the course of business, these portfolios have become more susceptible to potential operational risks through breaches in cybersecurity.
In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain investments as well as performance.
The COVID-19 global pandemic has caused and may continue to cause significant volatility and declines in global financial markets. While the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease.
The value of the securities held by a trust may be subject to steep declines or increased volatility due to
changes in performance or perception of the issuers of the securities held by the reference asset.
Cboe® is a registered trademark of Cboe Exchange, Inc., which has been licensed for use in the products. The
products are not sponsored, endorsed, sold or marketed by Cboe Exchange, Inc. or any of its affiliates (“Cboe”)
or their respective third-party providers, and Cboe and its third-party providers make no representation
regarding the advisability of investing in the products and shall have no liability whatsoever in connection
with the products.
The Trust is not sponsored, endorsed, sold or promoted by SPDR® S&P 500® ETF
Trust, PDR, Standard & Poor’s®, (together with their affiliates hereinafter referred to as the “Corporations”). The
Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of, descriptions and
disclosures relating to the trust or the FLEX Options. The Corporations make no representations or warranties,
express or implied, regarding the advisability of investing in the trust or the FLEX Options or results to be obtained
by the trust or the FLEX Options, shareholders or any other person or entity from use of the SPDR® S&P 500® ETF
Trust. The Corporations have no liability in connection with the management, administration, marketing or trading
of the trust or the FLEX Options.
The Sponsor may elect to postpone the trust if certain adverse market conditions occur that affect volatility and pricing of the FLEX Options.