As The Nasdaq 100 Soars to Higher Heights, Get Risk-Managed Income

The Nasdaq 100 keeps on soaring to higher heights, but investors shouldn’t fly into the index blindly and hedge accordingly with ETFs like the Global X Nasdaq 100 Risk Managed Income ETF (QRMI).

The index is ousting its peers, such as the S&P 500 and the Dow Jones Industrial Average (DJIA). So far this year, the index is up 21%, highlighting the ongoing strength in big tech companies like Apple, Amazon, and Microsoft.

^NDX Chart

^NDX data by YCharts

Utilizing options can allow an investor to take the inverse of their current position if markets go awry. This is especially the case when it comes to volatility in the Nasdaq 100.

QRMI seeks to offer passive investment results that correspond to the underlying index, the Nasdaq-100 Monthly Net Credit Collar 95-100 Index. This index measures the performance of an options collar strategy that is applied to the Nasdaq 100 Index, using a mix of short (sold) call options and long (purchased) put options.

The fund uses a 5% long position on out-of-money put options and a short position in at-the-money call options on the securities in the parent index. The underlying index takes long positions on a monthly basis with monthly put options that have an exercise price close to 5% below the current market price of the parent index and monthly call options with an exercise price at the current market prices of the parent index.

Where’s the Nasdaq 100 Headed?

While the 21% year-to-date performance screams bullish overtones, there are some potential headwinds to consider heading into the fourth quarter and the rest of the year. As such, ETFs like QRMI ensures that investors are poised to nullify a downturn or capture upside.

A DailyFX article noted that “there is one key risk looming over equity markets in September: the prospect of higher corporate taxes.” This is due to the $3.5 million infrastructure package that “could pass via the budget reconciliation process without a single Republican vote sometime in the fall, will likely raise corporate taxes from 21% to 25% or, in the worst-case scenario, to 28%.”

“Last but not least, another potential headwind for the Nasdaq is seasonality,” the article noted further. “Although past performance is not indicative of future results, September tends to be a disappointing month for stocks as investors cut positions to book profits. For this reason, the retail crowd should trade with caution and less complacency and prepare for the possibility of a normal technical correction in the not too distant future.”

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