Alternatives and options strategies continue to gain traction with advisors and investors facing a year fraught with market and economic complexity. The Neuberger Berman Option Strategy ETF (NBOS ) offers a different approach to option writing strategies, making it a notable contender within the category.
The rising tide of options-based income ETFs in the last few years resulted in significant growth of offerings within the category. While call-writing ETFs became increasingly mainstream, their counterparts — put-writing strategies — largely languished. It leaves firms like Neuberger Berman with a potential competitive advantage for the advantages that put writing strategies may offer.
Neuberger Berman brings over eight years of managing a put-writing strategy to bear in NBOS. It converted in January 2024 from a mutual fund strategy originally launched in September 2016. The strategy consistently outperforms the broad options ETF market.
The fund also currently offers a distribution rate of 8.05% as of January 31, 2025. Distribution rate annualizes the most recent distribution before dividing by the fund’s NAV. It’s a forward-looking metric that gauges what an investor would realize in a year should the most recent distribution remain the same.
Underwriting Equity Risk Using Options
NBOS 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 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.
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. Sometimes that may be greater, but won’t exceed 125%.
NBOS collateralizes its options using a portfolio of laddered, investment-grade bonds, mostly 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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