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The option income strategy gained momentum last week. YieldMax SQ Option Income Strategy ETF (SQY - Free Report) , YieldMax NVDA Option Income Strategy ETF (NVDY - Free Report) and YieldMax MRNA Option Income Strategy ETF (MRNY - Free Report) were up in double digits.
This strategy aims to generate regular income from options like selling covered calls, which give the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a certain date.
If the stocks rise above a specified “strike” price, the fund pays the buyer of the option the difference between the stock price and the strike price. However, if the stock declines or simply stays below the exercise price, the fund keeps the income paid by the option buyer. That premium is passed on to fund holders, which is a big attraction for many investors (read: 5 Technology Stocks Powering the S&P 500 ETF This Year).
With this process, the ETF portfolio aims to generate additional monthly income from the call option (premiums collected). The income from option premiums can help to offset losses from the underlying stocks, which can potentially result in lower portfolio volatility. This means that option income strategies might experience smaller price swings compared to a pure equity investment.
The main drawback is that selling covered calls caps the gains of the ETF. During bullish markets, the ETFs might underperform as the profits from rising stock prices are partially offset by the losses on the call options. As such, the strategy outperforms in neutral to bear markets but underperforms in bull markets in the short term. Additionally, the fees associated with the management of the covered call strategy, along with the ETF’s expense ratio, could erode the fund's returns, especially if the strategy fails to generate the expected income.
An option income strategy is particularly attractive to income-focused investors, including retirees or those nearing retirement, who are looking for ways to enhance yield in their portfolios without taking on excessive risk.
We have provided details of the above-mentioned ETFs here:
YieldMax SQ Option Income Strategy ETF (SQY - Free Report) – Up 14.9%
YieldMax SQ Option Income Strategy ETF is an actively managed fund that seeks to generate monthly income by selling/writing call options on Block, formerly known as Square (SQ - Free Report) . It pursues a strategy that aims to harvest compelling yields while retaining capped participation in the price gains of SQ. YieldMax SQ Option Income Strategy ETF has accumulated $33.4 million in its asset base and charges 99 bps in annual fees.
YieldMax NVDA Option Income Strategy ETF (NVDY - Free Report) – Up 11.3%
YieldMax NVDA Option Income Strategy ETF is an actively managed fund that seeks to generate monthly income by selling/writing call options on Nvidia (NVDA - Free Report) . NVDY pursues a strategy that aims to harvest compelling yields while retaining capped participation in the price gains of NVDA. YieldMax NVDA Option Income Strategy ETF has amassed $185.3 million in its asset base while trading in an average daily volume of 185,0000 shares. It charges 99 bps in annual fees per year from investors (read: Nvidia ETFs to Tap for More Growth Post Blowout Q4 Earnings).
YieldMax MRNA Option Income Strategy ETF (MRNY - Free Report) – Up 10%
YieldMax MRNA Option Income Strategy ETF is an actively managed fund that seeks to generate monthly income by selling/writing call options on Moderna (MRNA). It pursues a strategy that aims to harvest compelling yields while retaining capped participation in the price gains of MRNA. YieldMax MRNA Option Income Strategy ETF has AUM of $19.1 million and charges 99 bps in annual fees. It trades in a volume of 46,000 shares a day on average.
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Option Income Strategy ETFs That Gained Last Week
The option income strategy gained momentum last week. YieldMax SQ Option Income Strategy ETF (SQY - Free Report) , YieldMax NVDA Option Income Strategy ETF (NVDY - Free Report) and YieldMax MRNA Option Income Strategy ETF (MRNY - Free Report) were up in double digits.
This strategy aims to generate regular income from options like selling covered calls, which give the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a certain date.
If the stocks rise above a specified “strike” price, the fund pays the buyer of the option the difference between the stock price and the strike price. However, if the stock declines or simply stays below the exercise price, the fund keeps the income paid by the option buyer. That premium is passed on to fund holders, which is a big attraction for many investors (read: 5 Technology Stocks Powering the S&P 500 ETF This Year).
With this process, the ETF portfolio aims to generate additional monthly income from the call option (premiums collected). The income from option premiums can help to offset losses from the underlying stocks, which can potentially result in lower portfolio volatility. This means that option income strategies might experience smaller price swings compared to a pure equity investment.
The main drawback is that selling covered calls caps the gains of the ETF. During bullish markets, the ETFs might underperform as the profits from rising stock prices are partially offset by the losses on the call options. As such, the strategy outperforms in neutral to bear markets but underperforms in bull markets in the short term. Additionally, the fees associated with the management of the covered call strategy, along with the ETF’s expense ratio, could erode the fund's returns, especially if the strategy fails to generate the expected income.
An option income strategy is particularly attractive to income-focused investors, including retirees or those nearing retirement, who are looking for ways to enhance yield in their portfolios without taking on excessive risk.
We have provided details of the above-mentioned ETFs here:
YieldMax SQ Option Income Strategy ETF (SQY - Free Report) – Up 14.9%
YieldMax SQ Option Income Strategy ETF is an actively managed fund that seeks to generate monthly income by selling/writing call options on Block, formerly known as Square (SQ - Free Report) . It pursues a strategy that aims to harvest compelling yields while retaining capped participation in the price gains of SQ. YieldMax SQ Option Income Strategy ETF has accumulated $33.4 million in its asset base and charges 99 bps in annual fees.
YieldMax NVDA Option Income Strategy ETF (NVDY - Free Report) – Up 11.3%
YieldMax NVDA Option Income Strategy ETF is an actively managed fund that seeks to generate monthly income by selling/writing call options on Nvidia (NVDA - Free Report) . NVDY pursues a strategy that aims to harvest compelling yields while retaining capped participation in the price gains of NVDA. YieldMax NVDA Option Income Strategy ETF has amassed $185.3 million in its asset base while trading in an average daily volume of 185,0000 shares. It charges 99 bps in annual fees per year from investors (read: Nvidia ETFs to Tap for More Growth Post Blowout Q4 Earnings).
YieldMax MRNA Option Income Strategy ETF (MRNY - Free Report) – Up 10%
YieldMax MRNA Option Income Strategy ETF is an actively managed fund that seeks to generate monthly income by selling/writing call options on Moderna (MRNA). It pursues a strategy that aims to harvest compelling yields while retaining capped participation in the price gains of MRNA. YieldMax MRNA Option Income Strategy ETF has AUM of $19.1 million and charges 99 bps in annual fees. It trades in a volume of 46,000 shares a day on average.