First Trust Long/Short Equity (FTLS) Covered Calls

The First Trust Long/Short Equity ETF (FTLS) is an actively managed exchange-traded fund that seeks capital appreciation by employing a long/short strategy. The fund typically holds long positions in high-quality U.S. equities while simultaneously shorting stocks with poor fundamental or technical characteristics. By managing both long and short exposure, FTLS aims to deliver competitive equity returns with lower volatility and reduced correlation to the broader market.

You can sell covered calls on First Trust Long/Short Equity to lower risk and earn monthly income. Born To Sell's covered call screener gives you customized search capabilities across all possible covered calls but here are a couple of examples for FTLS (prices last updated Fri 4:16 PM ET):

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The First Trust Long/Short Equity ETF (FTLS) is a sophisticated actively managed vehicle designed to provide a "hedged" approach to equity investing. Unlike traditional "long-only" ETFs that rise and fall directly with the market, FTLS utilizes a long/short strategy. This involves buying undervalued, high-quality companies (long positions) and selling borrowed shares of overvalued or fundamentally weak companies (short positions). This dual-sided approach allows the fund to potentially profit from both advancing and declining stock prices.

The fund’s investment process is driven by a proprietary quantitative methodology that ranks the universe of U.S. exchange-listed stocks based on factors such as valuation, earnings quality, and price momentum. The portfolio managers typically maintain a "net long" exposure, meaning the total value of long positions exceeds the value of short positions. This allows the fund to participate in general market uptrends while the short book acts as a buffer during periods of market stress or sector-specific downturns.

Core Business and Products

The core "product" of FTLS is a dynamically managed portfolio that typically holds between 80 to 120 long positions and 30 to 60 short positions. The long portfolio often focuses on resilient sectors like Information Technology and Health Care, featuring liquid, optionable leaders such as Microsoft and UnitedHealth Group. The short portfolio targets companies with deteriorating balance sheets or negative earnings surprises, providing a unique risk-mitigation layer rarely found in the ETF wrapper.

Competitive Landscape

The long/short ETF category is a specialized "alternative" asset class. To provide a useful comparison for option traders, FTLS is benchmarked against the most liquid hedged and tactical instruments in the market. Key optionable competitors include:

1. SPDR S&P 500 ETF Trust: The primary broad-market benchmark against which FTLS measures its risk-adjusted returns and "alpha" generation.
2. AGFiQ US Market Neutral Anti-Beta Fund: A unique competitor that shorts high-beta stocks and goes long low-beta stocks; it has a niche but functional options market for hedging.
3. IQ Merger Arbitrage ETF: A liquid alternative fund that uses a hedged strategy to capture the spread in merger deals, competing for the same low-volatility capital as FTLS.
4. ProShares Short S&P500: The most liquid "inverse" benchmark, representing the pure short exposure that FTLS attempts to manage actively within its own portfolio.
5. ProShares Short Russell2000: A key tactical tool for hedging small-cap exposure, similar to the short-side mechanics used by the FTLS quantitative model.

Strategic Outlook and Innovation

The strategic outlook for FTLS is particularly relevant in "sideways" or volatile markets where traditional indexing struggles. As the era of "easy money" transitions into a period of higher capital costs, the dispersion between high-quality and low-quality companies is expected to widen. This environment creates fertile ground for long/short managers to generate "alpha" by identifying the winners and losers of a more disciplined economic cycle.

Innovation at FTLS is centered on the continuous refinement of its quantitative models. The fund leverages advanced data processing to monitor thousands of data points across the U.S. equity market, allowing for rapid adjustments to the short book if a specific industry’s fundamentals begin to decay. By offering a "hedge fund-like" strategy in a transparent, liquid, and daily-tradable ETF format, FTLS provides retail and institutional investors with a tool to manage downside risk without completely exiting the equity markets.

Want more examples? FTK Covered Calls | FTNT Covered Calls