NEOS Investments expanded its options-based income ETF lineup in the real estate sector today. The firm launched the NEOS Real Estate High Income ETF (IYRI), broadening its options income strategy coverage of asset classes.
As with all NEOS funds, IYRI seeks high monthly income. The fund is actively managed and invests in U.S. real estate investment trusts (REITs) within the Dow Jones U.S. Real Estate Capped Index. The Index also contains companies that invest in real estate via development, ownership, or management. The index cap ensures that no single stock makes up more than 10% of the index.
Options-Based Income Within Real Estate
IYRI also writes covered calls on the Index, or on ETFs that track the Index. 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. In essence, the strategy trades a portion of potential upside capture and translates it into income.
The calls written may be exchange-traded options or, more often, Flexible Exchange (FLEX) options. While both options are guaranteed by the Options Clearing Corporation, FLEX options allow for greater customization. This includes specifying strike prices and expiration dates.
The managers may also deploy a call spread strategy in specific circumstances, selling calls while also buying long call options on the Index. When using the call spread, the managers work to create a net-credit where premiums earned offset the costs of purchasing calls. In addition, the managers may chose exit option positions before their expiration in order to minimize losses or capture gains.
NEOS is home to pioneers of options ETFs and brings this deep well of experience to bear when managing the strategies. IYRI is the tenth ETF launched by NEOS, joining funds like the popular NEOS S&P 500 High Income ETF (SPYI ) and the NEOS Nasdaq 100 High Income ETF (QQQI ).
IRYI carries an expense ratio of 0.68%.
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