Generating income doesn’t have to be difficult, but the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) can take some of the labor out of the endeavor for investors.
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.
“Investors who sell covered calls on a frequent basis oftentimes don’t have a clue as to why they are utilizing the strategy,” according to Seeking Alpha. “Also, they don’t thoroughly understand the principles of management: should we adjust our positions all the time to keep our directional exposure in check or should we stay mechanical to let the probabilities work out in our favor?”
In other words, there’s work involved with writing covered calls on individual indexes or stocks, but with NUSI, investors don’t have to do that work themselves.
NUSI’s income stream is sourced through covered calls, not common equity payouts. That’s meaningful because covered calls aren’t dividends, meaning the strategy isn’t vulnerable to negative dividend action.
With income stemming from covered calls, downside protection, and a distribution yield of 7.81%, NUSI is a strong alternative to traditional dividend income in this market climate.
“A covered-call writing strategy that adjusts the strike price during corrections will see smaller drawdowns than the covered-call strategy with a static strike price. This is quite logical: smaller long delta and a higher options credit to reduce standard deviation,” according to Seeking Alpha.
That’s a relevant point with NUSI because the fund is actively managed and doesn’t focus on a single strike with is covered calls. Plus, the fund offers downside buffers via protective puts.
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.
Even its high income stream and downside protection, NUSI doesn’t sacrifice upside participation as highlighted by a gain of more than 14% over the past 90 days.
For more on income strategies, visit our Retirement Income Channel.