The Nationwide Risk-Managed Income ETF (NUSI) takes on the leg work of writing covered calls for investors, an important trait at a time when the income offered by this options strategy is increasingly important.
NUSI is an actively managed portfolio of stocks included in the Nasdaq-100 Index and an options collar. Per index rules, the fund only invests in the top 100 largest by market cap, nonfinancial stocks listed on NASDAQ. A collar strategy involves selling or writing call options and buying put options, thus generating income to hedge some downside risk. The strategy seeks to generate high current income monthly from any dividends received from the underlying stock and the option premiums retained.
“With rates near zero, it is becoming increasingly difficult for investors to find yield. Thankfully with options, we can trade strategies that are yield-based, such as covered calls,” reports Gavin McMaster for Investor’s Business Daily.
NUSI's Place in a Portfolio
Covered call strategies can potentially augment a portfolio during periods of heightened volatility. The covered-call options allow an investor to hold a long position in an asset while simultaneously writing, or selling, call options on the same asset.
“Covered calls are a simple options strategy for beginners. They are quite conservative and easy to understand for those that are familiar with owning stocks,” according to IBD.
The Nationwide Risk-Managed Income ETF incorporates options exposure to help generate income and mitigate risk as a way to enhance total returns. Investors have long capitalized on covered call options strategies for income generation or protective put options strategies to protect against and limit losses. There are some inklings that the NUSI foundation will prove beneficial to investors beyond 2020.
“One call option contract represents 100 shares, so investors can sell multiple call options if they have a particularly large stock holding,” according to IBD. “Over time, covered calls have the potential to increase returns while also decreasing the volatility of a portfolio. With rates near zero, this can be an attractive strategy for investors trying to generate extra yield from their portfolio.”
NUSI can act as a complement to traditional equity and fixed income allocations or as the ideal protective hedge for investors with heavy exposure to technology and growth stocks because the fund is a “rules-based options trading strategy that seeks to produce high income using the Nasdaq-100 Index,” according to Nationwide.