Equities rallied over the past several days, but there’s still plenty of work to be done when it comes to reclaiming the February highs. Another way of looking at the scenario is volatility this month serves as a reminder regarding the importance of hedging long positions and generating income – objectives accomplished by the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI).
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
“Keeping with the theme of generating income from technology stocks, the Nationwide Risk-Managed Income ETF offers investors an interesting way of hedging long positions in funds tracking the Nasdaq-100 Index or stocks such as Apple and Microsoft,” reports InvestorPlace.
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.
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.
A protective put is an options strategy where an investor purchases a put option on an asset which they already own or bought on a share-for-share basis to limit potential losses. The protective put will cause profits derived from the strategy to be reduced by the premium paid for the put, but it limits the maximum potential losses.
“In plain English, NUSI generates income via covered call writing on the Nasdaq-100 and uses a portion of those proceeds to buy puts on that index, thereby giving investors a hedge,” according to InvestorPlace.
Real time results prove NUSI works in down markets or, at the very least, is less bad than traditional beta strategies. This month, NUSI is lower by 4.23% while the Nasdaq-100 Index is off 11.35%.
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.