The Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) offers investors an ideal alternative to writing covered calls on individual securities.

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.

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.

“Consider, therefore, a call-writing strategy. The approach calls for selling call options (“writing” calls) against the stocks you already own. Depending on how the strategy is executed, and depending on what the market does, the approach can live up to the claims,” according to The Street.

With covered calls, investors risk having a stock they like being called away, but NUSI eliminates that risk.

NUSI Covers Covered Calls

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.

“The call writing strategy doesn’t always work, however. And even when it does, you need to follow it with patience and discipline over time. The devil is in the details,” reports The Street.

Again, NUSI eliminates those risks.

NUSI YTD Performance

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.

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.

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.