Trends are not made or broken on a single day of price action, but stocks experienced their worst day since March on Thursday amid fears that a second wave of coronavirus is hitting the U.S. Investors can prepare for more downside while maintaining a strong income profile with the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI).

NUSI’s income is generated via writing covered calls on the widely followed and high-flying Nasdaq-100 Index. However, many covered call ETFs just sell options while not offering downside protection. NUSI takes a different approach.

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.

“It appears Greed has had the upper hand in the last few weeks, as markets have continued to rally in the face of a grim reality on the economic side. It is a great refresher to the saying that the stock market is not the economy and vise-versa,” reports Forbes.

Why NUSI Matters Now

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.

By selling calls and buying puts, NUSI presents investors with dual avenues for downside protection. Call writers typically want the underlying security to stay flat or decline somewhat because call options are long positions with unlimited upside potential.

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.