With Treasury yields low, dividends declining and risk still elevated in the high-yield corporate debt market, the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) remains a compelling idea for investors looking to shore up retirement income streams.
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 Nationwide Risk-Managed Income ETF will use 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.
Specifically, the ETF will try to achieve high monthly income generation, portfolio volatility reduction, reduced duration risk, and interest rate sensitivity, capital appreciation from equity participation, downside risk mitigation and enhanced tax efficiency of index options.
NUSI Means Income
NUSI incorporates both covered call and protective puts as a way to enhance income generation and protect against any potential downside.
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.
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. A protective put strategy is ideal for investors with a bullish outlook who wish to hedge a long position against a downturn.
That methodology separates NUSI from competing strategies, many of which offer no downside protection.
For more on income strategies, visit our Retirement Income Channel.