Yield generation has been a hot topic as investors look for alternative income sources in a low-rate environment. ALPS with Rich Investment Solutions recently launched an exchange traded fund that seeks to provide income through a sophisticated options strategy.
The U.S. Equity High Volatility Put Write Index Fund (NYSEArca: HVPW) tries to reflect the performance of the NYSE Arca U.S. Equity High Volatility Put Write Index, which tracks a portfolio of exchange-traded put options on the largest capitalized stocks that have listed options with the highest volatility. [Generating Income with the New Put-Write ETF]
HVPW has a 0.95% expense ratio. The fund was launched early March and made a roughly $0.38 distribution on April 29. Distributions will be made every two months, six times per year. If distributions remain relatively the same, the ETF could generate a 9% annual yield.
“HVPW is an income-generating fund,” Kevin Rich, president and founder of Rich Investment Solutions, the subadvisor of HVPW, said in an Investor’s Business Daily article. “The fund creates income by selling 15% out-of-the-money put options every two months on 20 underlying stocks with the highest implied volatility and market capitalization over $5 billion. Selling puts is a very efficient and popular way to generate income in the equity markets.”
Put options allow a buyer the right, but not the obligation, to sell a specific quantity of a security at a set strike price, or exercise price, on or before an agreed expiration date. The put option buyer would pay the seller a premium for this right to sell. HVPW generates income through these premiums.