Market volatility in the first quarter of 2025 remains pronounced, creating opportunity for options investors. Those seeking to harness volatility for potential gains would do well to consider the Neuberger Berman Option Strategy ETF (NBOS ). The fund has the potential to outperform in flat or falling markets while earning higher income on elevated volatility.
Options strategies proved popular with advisors and investors in the last few years. In particular, options income strategies continue to draw in flows for their ability to capitalize on market volatility. Option writing strategies earn premiums for written (sold) options. When volatility spikes, premiums also rise. This makes them particularly attractive in an environment of pronounced or prolonged volatility.
NBOS is actively managed and seeks to generate income and long-term capital growth. It offered a distribution rate of 8.02% as of December 3, 2024. Distribution rate is the yield an investor would earn annually if the most recent distribution remained the same.
Benefit From Volatility With NBOS
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, 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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