Options-based income strategies proved their worth in the last few years, adding diversification and a differentiated source of income generation. The NEOS S&P 500 High Income ETF (SPYI ) remains a popular choice for investors, with over $2.3 billion in AUM and a distribution rate over 12%.
Investors looking to boost income potential within their equity portfolio should consider SPYI. The fund offers exposure to the S&P 500 while generating high monthly income through call options. SPYI uses money earned from written calls to buy long, out-of-the-money call options on the S&P 500 Index.
An out-of-the-money call option has no intrinsic value. That’s because the underlying asset’s current price is below the call’s strike price. Should equities rise or fall, NEOS can actively manage the call options to capture gains in the underlying assets or minimize losses.
See also: Options Income ETF SPYI Soars Past $2 Billion in AUM
The fund generated a distribution rate of 12.19% as of October 31, 2024. Distribution rate annualizes the most recent distribution and then divides by the fund’s NAV. It crossed $2 billion in AUM in October and continues to amass inflows, with $2.33 billion in AUM as of November 19, 2024.
SPYI Combines Income and Tax-Efficiency for Investors
SPYI offers not only high income but also layers of tax efficiency. The fund uses index options, which are taxed favorably as Section 1256 Contracts under IRS rules. 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 as 60% long-term and 40% short-term, no matter how long investors hold them. This can offer noteworthy tax advantages.
SPYI’s managers also engage in tax-loss harvesting opportunities throughout the year on the call options, equity holdings, or both.
SPYI has an expense ratio of 0.68%.
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