“If the price of the stock falls below the strike price, the put seller will have to purchase shares from the put buyer when the option is exercised,” Investopedia explains. “Therefore, a put seller usually has a neutral/positive outlook on the stock or expects a decrease in volatility that he or she can use to create a profitable position.”
However, investors assume the risk that the selected stocks may close below their strike price and give up any potential upside on the underlying equities above the income the fund receives from selling the options. [Generating Income with the New Put-Write ETF]
“No other ETFs do this, and the closed-end and mutual funds that do are more expensive,” Rich said. “We didn’t invent put writing. We’re just wrapping the strategy into an effective ETF vehicle.”
ALPS U.S. Equity High Volatility Put Write Index Fund
For more information on dividend generating assets, visit our dividend ETFs category.
Max Chen contributed to this article.