ETFs offer all kinds of flexibility for investors and advisors, but for TappAlpha CEO Si Katara, they provided a particularly important type of flexibility – an opportunity for a career change. Katara left the software firm he co-founded, Headlight, in 2022 to spearhead the launch of TappAlpha early last year. The firm celebrated the launch of its first strategy, TSPY, last month, with the options income ETF presenting an intriguing case to investors.
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(TSPY), the TappAlpha SPY Growth & Daily Income ETF, looks to tap the income potential of the SPDR S&P 500 ETF Trust (SPY ), per Katara. Actively managed, the options income ETF also holds actual shares of SPY rather than swaps, which helps it offer long-term growth. TSPY uses daily out-of-the-money calls via 0DTE, or zero days until expiration, options.
Katara came to finance as a buy-and-hold investor with a passion for the industry. Arriving on the scene just as daily covered calls became available on the S&P 500.
“I tried it for a couple of months, and it blew my mind,” Katara said. “We were able to cover the lion’s share of our mortgage by using the 0DTEs on the SPY shares that I owned, and I got to keep all the shares.”
Covered Calls and TSPY
So, how do covered calls work, explained for a lay audience or newer investors? Katara compared using covered call options to, intriguingly, homeowners renting out Accessory Dwelling Units or ADUs.
“Options are a way to rent out that unused potential for income that’s currently not being used,” he said. “The drawback for options is sometimes you get a bad renter, and you have to pay for the repairs above and beyond the rent you get.”
Per Katara, the options income ETF’s use of 0 DTE options can help it stand out. That approach helps it avoid overnight risk, when information changes like earnings reports that drop overnight can have adverse impacts. The ability to “reset the strike point” each day, he noted, helps add important granularity to the fund.
TSPY charges a 68 basis point (bps) fee for its approach. For those looking for a strategy offering long term growth on top of income, its active approach and boutique focus could make it one to watch as it joins the ETF universe.
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