In financial market history, October has an interesting reputation. It’s been the birth month of dramatic declines, but stocks often perform in the tenth month of the year. With Election Day looming, either scenario could be in play this October, potentially highlighting the benefits of the Nationwide Risk-Managed Income ETF (NUSI).
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.
NUSI is unique in that it offers elevated income with downside protection. Many yield-driven strategies don’t do that and some volatility protection ideas lack adequate income.
“October’s ugly reputation for volatility is likely to continue, on the heels of a swift meltdown in September that erased two-thirds of the gains from the smooth sailing seen in July and August,” according to Seeking Alpha.
October Protection with NUSI
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.
“Compared to the other months, October’s average standard deviation of daily changes in the Dow is the highest at 1.43%. No other month comes close to it. And we did see a bit of a similar trend with July through September of rising volatility,” according to Seeking Alpha.
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. Traditionally, covered calls generate income while offering some layer of volatility protection, a relevant trait now that October is here.
“October’s volatility might simply be caused by investors expecting volatility due to past history of volatility (seen above) and then acting to create that pattern of volatility without necessarily/consciously realizing. Yet this coming October does have other factors that easily could lend a hand in creating volatile trading conditions,” notes Seeking Alpha.