Market volatility remains pronounced as of midday trading on Friday as investors digest rapidly shifting global trade dynamics. Advisors and investors looking to potentially harness volatility for income would do well to consider the NEOS options-based ETF suite this year.
The Cboe Volatility Index (VIX) reached a five-year high on Wednesday, crossing above 50 for the first time since the onset of the COVID-19 pandemic. It’s a level rarely seen and only experienced during periods of market crisis historically.
The current U.S. administration’s constantly changing economic policy continues to wreak havoc in markets. This week saw a rout in bonds as investors began to look beyond the U.S., with the U.S. dollar index (which measures the dollar against six other currencies) hitting its worst day on Thursday since 2022, reported CNN.
Why You Should Consider Options-Based Strategies in 2025
Concerns over U.S. stability, reflected in the flight from Treasuries and dollar devaluation, and rising uncertainty around changing global trade dynamics create a fraught investing environment. With volatility set to continue under an aggressive tariff regime and trade war with China, finding strategies to harness volatility for potential benefits could be a savvy move this year.
Options-based strategies generally benefit during periods of elevated volatility, particularly option writing strategies. As volatility rises, call and put writers earn higher premiums for the options they sell to compensate for higher market risk. This income earned may help alleviate a measure of drawdowns in underlying securities.
Income earned from options-based strategies also provide a differentiated income stream from traditional stock or bond distributions. At a time when diversification matters, investors shouldn’t overlook their income sources when diversifying. NEOS Investments, home to pioneers of options-based ETF pioneers, offers a suite of actively managed funds across core portfolio allocations. The majority of their ETFs also carry added layers of tax efficiency through the types of options they use as well as distribution classifications.
High Income in Equities & Alternatives
For advisors and investors looking to augment existing equity or alternative exposures, NEOS offers five ETFs. The flagship NEOS S&P 500 High Income ETF (SPYI ) provides exposure to the S&P 500 while also writing covered calls on SPX. SPYI currently holds nearly $3 billion in AUM as of April 10, 2025. Launched a little over a year ago, the NEOS Nasdaq 100 High Income ETF (QQQI ) offers exposure to the Nasdaq-100 while writing covered calls on NDX.
The NEOS Russell 2000 High Income ETF (IWMI ) uses a similar strategy but within the Russell 2000. All three funds use options that quality as Section 1256 contracts that receive favorable tax treatment under IRS rules. They also generate notable distribution rates (annualizes the most recent distribution before dividing by the fund’s NAV at time of distribution). SPYI boasts a distribution rate of 12.48%, QQQI a rate of 14.39%, and IWMI a rate of 15.16% as of April 10, 2025.
For investors looking to enhance or augment their alternatives portfolio, the firm offers two ETFs. The NEOS Bitcoin High Income ETF (BTCI) seeks to harness the upside potential of bitcoin while also generating additional income from its option writing strategy. Meanwhile, the NEOS Real Estate High Income ETF (IYRI) invests in REITs within the Dow Jones U.S. Real Estate Capped Index while also writing covered calls on the Index or ETFs that track the Index.
Hedged Equity Income
Hedged strategies are proving increasingly popular this year as investors look to protect their portfolios from market drawdowns. The NEOS Nasdaq-100 Hedged Equity Income ETF (QQQH) combines income and downside protection within the Nasdaq-100 using a put spread option collar. The newly launched NEOS S&P 500 Hedged Equity Income ETF (SPYH) does similar in the S&P 500. Both funds use options that qualify as Section 1256 contracts, offering layers of tax efficiency for investors.
Enhanced Income in Bonds
Last but not least, the firm offers a variety of strategies within core bond allocations. This includes the popular NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI ). The strategy seeks to deliver 100-150 basis points above what one- to three-month Treasuries yield. The fund invests ultra-short duration Treasuries while also selling put spreads on the S&P 500. This enhances the monthly income and diversifies the income stream and performance potential compared to other bond strategies. The options used also qualigy as Section 1256 contracts.
Launched last December, the NEOS Enhanced Income 20+ Year Treasury Bond ETF (TLTI) follows the same strategy but within 20-year Treasuries. Meanwhile, the NEOS Enhanced Income Aggregate Bond ETF (BNDI ) provides total bond market exposure. It invests in both the iShares Core US Aggregate Bond ETF (AGG ) and the Vanguard Total Bond Market Index Fund ETF Shares (BND ). It also uses put options on the S&P 500.
The NEOS Enhanced Income Credit Select ETF (HYBI) was a mutual fund conversion that takes a “fund of funds” approach to bond investing. The fund invests in both U.S. high yield bonds as well as U.S. investment-grade bonds. Securities are selected for their capital appreciation potential and/or interest income generation. HYBI also incorporates a put spread strategy on the SPX that sells short put options while buying long puts.
No matter your risk appetite, NEOS has an options-based strategy for you.
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