The Nasdaq 100 Index touched 10,000 for the first time on Tuesday and while technology stocks and ETFs are sure to get plenty of attention as a result, investors shouldn’t overlook the income-generating Nationwide Risk-Managed Income ETF (NYSEArca: NUSI).
The Nationwide Risk-Managed Income ETF incorporates options exposure to help generate income and mitigate risk as a way to enhance total returns. Investors have long capitalized on covered call options strategies for income generation or protective put options strategies to protect against and limit losses.
“The Nasdaq 100 scored an incredible achievement on Tuesday as it crossed the 10,000 mark for the first time in history. While the remarkable recovery has seen the Nasdaq reach new heights, the S&P 500 and Dow Jones – along with other global equity markets like the DAX 30 and FTSE 100 – remain beneath their covid-19 peaks,” reports DailyFX.
NUSI ETF Shines
NUSI isn’t a dud. It’s up more than 3% over the past week. The Nationwide Risk-Managed Income ETF uses an options trading strategy called a protective net-credit collar to generate income. The options strategy sells an upside call option and uses a portion of the proceeds received to buy a put option to hedge downside risk on an underlying portfolio of securities. These days, NUSI is a superior yield alternative to many fixed income strategies.
As such, NUSI offers a platform for generating stocks that either have low yields, such as Apple and Microsoft, or non-dividend payers, like Alphabet and Amazon. Plus, NUSI has a distribution yield of 7.81%, according to issuer data.
“In turn, we can look to the stellar performance of large cap technology stocks like Microsoft, Facebook, Google, Apple, and Amazon, all of which possess a significant influence on the Nasdaq, as key drivers of the recovery rally,” according to DailyFX.
Covered call strategies 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.
“But even these innovators and industry leaders have a basis in the underlying economy which remains fragile. Thus, many market participants have called the current recovery overbought and indeed, symptoms of euphoria are widespread as shares of companies that have gone bankrupt (Hertz) surge to deliver massive gains to those willing to weather the risk,” according to DailyFX.
One way of approaching that scenario is to consider NUSI in the event the Nasdaq 100 retreats because it’s less volatile and offers downside protection.
For more on income strategies, visit our Retirement Income Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.