Markets and investors anxiously await election results as U.S. voting continues today. Whichever way the presidential election goes, advisors and investors anticipate enhanced short-term volatility. The NEOS suite of high income options-based ETFs warrant consideration for their ability to harness volatility for income.
Options-writing strategies benefit during periods of heightened volatility. Because enhanced volatility creates a greater likelihood of an option contract reaching its strike price, options writers receive compensation for this higher risk in the form of higher premiums. This leaves the NEOS ETF suite that uses options for income well-positioned for elevated volatility risk post-election.
Make the Most of Volatility With Options-Based ETFs
The NEOS suite of options-based ETFs focuses on high income combined with enhanced tax efficiency for investors. They offer exposure to a variety of core asset classes, making a strong complement to existing allocations.
These ETFs with core asset class exposures use index options when applicable. 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 launched its original three ETFs in 2022 and has since grown the suite to seven funds. These include the NEOS S&P 500 High Income ETF (SPYI ), the NEOS Nasdaq 100 High Income ETF (QQQI ), the NEOS Enhanced Income Aggregate Bond ETF (BNDI ), and the NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI ).
More recently, the firm launched the NEOS Russell 2000 High Income ETF (IWMI ), the NEOS Bitcoin High Income ETF (BTCI ), and NEOS Enhanced Income Credit Select ETF (HYBI ), a mutual fund conversion.
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