Market volatility continues as investors anxiously await the Friday jobs report after a week of economic data indicating continued economic slowing. While the data proves favorable for rate cuts, economic weakening could spell trouble in the long term. Options strategies may provide opportunity for investors to harness and ride out volatility while waiting for markets to turn around.
Volatility benefits options writers who earn premiums. Greater volatility leads to higher premium prices because there is a higher likelihood the option will expire in-the-money. To account for this higher level of risk for the option writer, a higher premium is paid.
It makes funds that utilize call options writing for income, particularly appealing in times of elevated market volatility. Investors can get paid to ride out volatility while staying invested in underlying assets.
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Make Volatility Work in Your Favor
The NEOS suite of options-based ETFs focuses on high-income combined with enhanced tax efficiency for investors. All of the NEOS income ETFs use Index options. Beyond providing liquidity, NEOS makes use of options that qualify as Section 1256 contracts under IRS rules. Regardless of how long an option was held at the end of the year, it’s treated as if sold on the last market day of the year at fair market value.
Any capital gains or losses receive a tax treatment of 60% long-term and 40% short-term. This treatment occurs regardless of how long the strategy invested in the options. This provides notable tax advantages for investors.
In addition to favorable tax treatment, a portion of distributions are return of capital. These receive special tax treatment by allowing for tax deferment on any RoC income. This gives investors better control over their taxable income within a given year.
NEOS also engages in tax-loss harvesting throughout the year on the options. Combining the layers of tax efficiency provides investors with the opportunity to make the most of income earned from core allocations.
The firm currently offers five options-based ETFs for core portfolio allocations. These include the NEOS S&P 500 High Income ETF (SPYI ), the NEOS Nasdaq-100 High Income ETF (QQQI ), and the Russell 2000 High Income ETF (IWMI ) within equities. Within bonds, the firm offers the NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI ) and the NEOS Enhanced Income Aggregate Bond ETF (BNDI ).
For more news, information, and analysis, visit the Tax Efficient Income Channel.
