The technology sector’s income profile is gradually increasing, but investors can take that equation up a few notches with the Nationwide Risk-Managed Income ETF (NUSI). NUSI’s Nasdaq-100 Index exposure makes it a relevant consideration for adding income to tech.
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.
“The sector stocks volatility and option premiums are high. Technology stock prices are expected to move faster when rising, with a tendency to “melt up” from improved growth prospects and increased demand for shares,” reports The Real Daily. “High strike options on the call side have increased demand, as the options provide leveraged exposure to upward stock price movements.”
NUSI's Recipe for Income
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.
NUSI incorporates both covered call and protective puts as a way to enhance income generation and protect against any potential downside.
A covered call refers to an options strategy where an investor writes or sells a call option on an asset which they already own or bought on a share-for-share basis to generate income via premiums derived from the sale of the call options. However, the covered call strategy caps upside potential and provides limited downside protection, so it is ideal for investors with a neutral-to-bullish outlook.
“Strike is always above the current price of the stock minus the premium. Upside remains from the net cost up to the strike of the option sold. Covered calls are less volatile than underlying stocks. Stock price movements are partially counterbalanced by premium value changes,” according to The Real Daily.
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