Tech investors looking to diversify their portfolio and earn high monthly income would do well to consider the NEOS Nasdaq 100 High Income ETF (QQQI ). Launched at the end of January, the fund currently offers total returns more than 20% returns year-to-date.
The Nasdaq-100 rallied to new highs this week, driven by mega-cap gains and market optimism regarding a December rate cut next week. However, markets retreated by Friday’s close on concerns about sticky inflation, consumer resilience, and rising bond yields.
Ongoing tech volatility makes for a bumpy ride for investors. However, for funds like QQQI, that same volatility may prove a boon for its options income strategy. The fund boasts a total return of 21.43% YTD since launch in January, according to Y-Charts data.
QQQI is actively managed and provides exposure to the Nasdaq-100 Index, harnessing tech stock volatility for income. It uses a data-driven covered call options strategy designed to generate high income potential.
Covered calls entail buying an asset while also writing a call on the underlying asset. This generates a premium but also caps the upside potential should the underlying asset appreciate. QQQI also uses a call spread to achieve its income goals. This spread allows for more of the underlying to potentially participate in upside market movements when they occur compared to indexed covered call option strategies.
QQQI Combines Income and Tax-Efficiency
In addition to potential upside capture, the fund offers layers of tax efficiency for income-oriented investors. The options that QQQI uses are call options on the NDX and qualify as section 1256 contracts. These receive favorable tax treatment under IRS rules. The options held at year’s end are treated as if sold at fair market value on the last market day. Any capital gains or losses are taxed at 60% long-term and 40% short-term, no matter how long they were held.
Should equities rise or fall, NEOS can actively manage the call options to capture gains in the underlying assets or minimize losses. In addition, the fund’s managers also engage in tax-loss harvesting opportunities throughout the year on the call options, equity holdings, or both.
QQQI has an expense ratio of 0.68%.
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