Yields on Treasuries and the S&P 500 are paltry, forcing investors to generate income elsewhere. The Nationwide Risk-Managed Income ETF (NUSI), which uses covered calls to elevate income, can help in today’s low-yield climate.
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.
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.
“When an investor writes a covered call, that investor sells someone else the right to purchase 100 shares of the stock that the investor already owns, at a specific price, within a specified timeframe,” reports Investing.com. “Put another way, a covered call is a hedged strategy as the writer is in a position to deliver the stock if it is called.”
Count on Covered Calls
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.
“Covered calls are an old investing methodology, but one that does not get much attention. That said, employing covered calls can be a great income strategy,” according to Nasdaq. “So what is a covered call? Simply put, it is the process of selling call options while simultaneously holding the underlying shares.”
NUSI is particularly useful for do-it-yourself investors that are new to call writing.
“However, they are likely to be of interest to retirees and income investors, who may be ready to sacrifice upside potential in exchange for more regular monthly distributions,” according to Investing.com. “Market participants may want to talk with a financial advisor to get a more in-depth understanding of the mechanics of such funds. For US-based investors, there are also likely to be tax consequences of writing call options.”