Exchange Fund Replication using Options with BlackRock's Eric Metz

Exchange fund replication lets advisors de-risk concentrated low-basis stock into index exposure via options, without the capacity limits or lock-in of pooled exchange funds.

• Four-legged replication trade: Exchange fund replication collars a concentrated stock (long put financed by a short call) while adding a synthetic long index position (long call, short put) to mimic index exposure without balance-sheet capital.
• Exchange funds are turning away stock: Since 2018, traditional exchange fund operators Goldman Sachs and Eaton Vance (now Morgan Stanley Investment Management) began rejecting concentrated positions like Apple when capacity or diversification limits were hit.

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