Covered calls or call writing is a basis options strategy, and one that can generate prodigious income when executed properly. The Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) does just that.

NUSI can act as a complement to traditional equity and fixed income allocations or as the ideal protective hedge for investors with heavy exposure to technology and growth stocks because the fund is a “rules-based options trading strategy that seeks to produce high income using the Nasdaq-100 Index,” according to Nationwide.

In today’s paltry yield climate, covered calls are increasingly relevant, underscoring the benefits of active management with NUSI.

“A covered call strategy means writing a call option against an equivalent amount of long stock. At that point, you own stock as well as options on the stock. And although you’re holding two separate positions simultaneously, it’s considered a single position within a portfolio,” according to The Ticker Tape.

Is the NUSI ETF a Better Mousetrap for Call Writing?

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.

NUSI YTD Performance

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.

Covered call strategies such as NUSI can potentially augment a portfolio during periods of heightened volatility. The covered-call options allow an investor to hold a long position in an asset while simultaneously writing, or selling, call options on the same asset. However, the strategy isn’t free of risk.

“Because options contracts are a decaying asset, you can make use of this time decay to create additional income around your core positions. Because both strategies involve collecting premium by selling options contracts, you can look to generate additional income even if the stock price remains stable. If the options contracts in the above examples expired in 30 days, each could lead to an additional 5% in income,” notes The Ticker Tape.

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