Put Write ETF Gets a New Look

With interest rates set to rise possibly as soon as next month, investors might want to take this opportunity to consider unique ways of generating income beyond favored high-yielding assets and sectors such as real estate investment trusts and utilities stocks.

One way of doing just that is tap the options market, but inexperienced options traders do not need to fret because the ALPS U.S, Equity High Volatility Put Write Fund (NYSEArca: HVPW) can help income-seeking investors navigate the world of selling puts. HVWP is an income-generating fund that produces yields by selling two-month 15% out-of-the-money put options on 40 diversified stocks with the highest implied volatility.

Selling puts can reward investors in a stagnant or rising stock market as the trader would collect premiums, or yields, if the strike price remains below the current market price of a security. Traders would typically employ a covered-call or put write strategy when they have a neutral view of the markets over the short-term and just bank on income generation from the option premium. [ETF Chart of the Day: Call Coverage]

HVPW recently experienced some important changes that could bolster the ETF’s allure to income investors.

“Increasing the number of underlying names from twenty to forty and ensuring no single economic sector consists of more than 17.5% of the names (a move lower from the previous 50% sector limit), help potentially mitigate downside movements in single names and/or single sectors,” according to a Seeking Alpha analysis of HVPW.