A variety of choices now exist for income investors looking to options-based strategies for opportunity. The Neuberger Berman Option Strategy ETF (NBOS ) offers a diversified income stream, generating yields from option writing and collateral holdings. Its short-duration collateral portfolio makes the fund a notable strategy should interest rates remain higher for longer.
Although interest rate cuts are already underway, recent language from Federal Reserve Chair Jerome Powell lends credence to the potential higher-for-longer rates looking ahead.
“The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell said in a speech on Thursday, reported CNBC. “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”
Harness Income While Minimizing Duration Risk With NBOS
The Neuberger Berman Option Strategy ETF (NBOS ) is actively managed and seeks to generate income and long-term capital growth. Through the fund’s use of equity index options, it may provide a diversified income stream and yield for portfolios. NBOS is worth consideration, given the fund’s distribution rate of 7.94% as of October 31, 2024. Distribution rate annualizes the most recent distribution and then divides by NAV as of the end of the last month.
NBOS’ strategy seeks to underwrite equity risk in markets, generating yield from option premiums and underlying collateral holdings. It’s expected to outperform in flat or declining markets while lagging but still capturing some upside in rising markets. The strategy seeks to increase income potential through options premiums while also benefiting from market volatility. The fund also invests in short-term Treasuries as a source of income.
See also: ETF of the Week: Neuberger Berman Option Strategy ETF
The fund writes put options on the S&P 500 and other indexes within the family of S&P 500 indexes, and on ETFs. Put options protect the buyer from loss should the underlying asset’s price fall below the strike price of the put. As a put writer, the fund benefits when the put option expires with the underlying price above or at the strike price. When it expires below and the put is exercised, the fund still benefits from the premiums earned.
The ETF managers consider overall market volatility, underlying valuations, and risks when writing put options. The aggregative investment exposure of the options written will typically equal 100% of NBOS’ assets, though sometimes may be greater, without exceeding 125%.
NBOS collateralizes its options using a portfolio of laddered, investment-grade bonds, most short-term. The fund invests primarily in Treasuries. However, it can invest in government agency bonds, corporate bonds, mortgage- and asset-backed securities, structured notes, and cash or cash equivalents.
In addition to purchasing put options, the fund may invest in or write call options. NBOS carries a net expense ratio of 0.56%.
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