The equity market bull run continues but remains choppy as inflation and rate uncertainty persist. Investors looking to enhance S&P 500 income and benefit from volatility don’t want to miss the NEOS S&P 500 High Income ETF (SPYI).
The Fed maintained rates at its latest meeting this month while leaning slightly more in favor of a rate-cut scenario than a rate-hike one looking ahead. Though the cautious posturing was met with relief by investors and markets, the path ahead remains difficult to predict.
“Powell can say whatever he wants, but ultimately the inflation numbers will dictate what happens,” Neil Dutta, head of economic research at Renaissance Macro Research, told WSJ.
Markets remain highly reactive to each new piece of economic and inflationary data this year, whether hopeful or disappointing. It creates an environment of ongoing volatility while uncertainty remains elevated.
For equity investors, capturing the bull run while riding volatility proves a constant challenge in 2024. It’s no surprise options-based equity income strategies gained popularity with investors in the last two years.
“Advisors want to enhance their income but have equity market exposure in the current bull market,” said Todd Rosenbluth, head of research at VettaFi. “Using options-based ETFs allows them easier access to these strategies.”
Harness Equity Volatility for Income With SPYI
Options writing strategies benefit in an environment of heightened volatility. Rising volatility increases the price of written options, thereby raising the premiums. For options-income strategies like the NEOS S&P 500 High Income ETF (SPYI), it’s a boon.
The fund seeks to provide exposure to the S&P 500 while generating high monthly income for investors through call options. It uses money earned from written calls to buy long, out-of-the-money call options on the S&P 500 Index.
An out-of-the-money call option has no intrinsic value. That’s because the current price of the underlying asset is below the strike price of the call. Should equities rise or fall, NEOS can actively manage the call options to capture gains in the underlying assets or minimize losses.
The options that the fund uses are index options, taxed favorably as Section 1256 Contracts under IRS rules. Options held at year’s end are treated as if sold at fair market value on the last market day. Any capital gains or losses are taxed as 60% long term and 40% short term, no matter how long investors hold them. This can offer noteworthy tax advantages.
See also: “Options Income ETF SPYI Crosses $1 Billion AUM”
SPYI’s managers also engage in tax-loss harvesting opportunities throughout the year on the call options, equity holdings, or both.
The ETF has an expense ratio of 0.68%.
For more news, information, and analysis, visit the Tax-Efficient Income Channel.
Read more on ETFTrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
