Advisors and investors with an eye to recession risks, market drawdowns or stagnation, or prolonged volatility would do well to consider the Neuberger Berman Option Strategy ETF (NBOS ). The option writing strategy provides potential mitigation for any of these risks while earning income for portfolios.
Federal Reserve officials updated their 2025 outlooks in the most recent FOMC meeting this week. Updates included lower growth, rising unemployment, and higher inflation than previously expected, reported WSJ. The shifts are a direct result of tariff impacts and new economic policies from the current administration.
With concerns around stagflation or even recession on the rise this year, investors looking to mitigate risks should consider NBOS. The fund seeks to solve for a number of challenges current portfolios face, including market stagnation or declines, an overexposure to cash, and prolonged volatility.
2 Income Sources, 1 Strategy for Today's Markets
The strategy seeks to underwrite equity risk in markets, generating yield from option premiums and underlying collateral holdings. NBOS writes put options on the S&P 500 and other indexes within the family of S&P 500 indexes, and on ETFs. Put options protect the buyer from loss should the underlying asset’s price fall below the strike price of the put. As a put writer, the fund benefits when the put option expires with the underlying price above or at the strike price. When it expires below and the put is exercised, the fund still benefits from the premiums earned.
Alongside options, NBOS also invests in short-term Treasurys as a source of income. This allows investors to harness two sources of returns through a single strategy without increasing their equity beta or credit exposures, or taking on additional interest rate risk.
It’s expected to outperform in flat or declining markets, while lagging but still capturing some upside in rising markets. The strategy also seeks to increase income potential through options premiums, which benefit from market volatility.
The ETF managers consider overall market volatility, underlying valuations, and risks when writing put options. The aggregative investment exposure of the options written will typically equal 100% of NBOS’ assets. Sometimes that may be greater, but won’t exceed 125%.
NBOS collateralizes its options using a portfolio of laddered, investment-grade bonds, mostly short-term. The fund invests primarily in Treasuries. However, it can invest in government agency bonds, corporate bonds, mortgage- and asset-backed securities, structured notes, and cash or cash equivalents.
In addition to purchasing put options, the fund may invest in or write call options. NBOS carries a net expense ratio of 0.56%.
For more news, information, and analysis, visit the Invest Beyond Cash Channel.
