An ETF With a Different Approach to Options Income

Options-based ETFs are surging in popularity among income-hungry investors, confirming that big yields are indeed selling points. However, many novice investors simply look at those tempting yields and jump right in without performing adequate due diligence.

They shouldn’t be skipping that evaluation process. It reveals that many ETFs in this category are covered call funds. There’s nothing wrong with that. However, the dominance of call writing in the options income ETF space often prompts investors to overlook the perks of put selling. The Neuberger Berman Option Strategy ETF (NBOS) makes that endeavor easier.

That actively managed putwrite ETF debuted in ETF form in January 2024. Good news for income investors: NBOS’s strategy is no more complex than what’s found with covered call equivalents.

“Put option sellers, also known as writers or granters, sell put options hoping that they become worthless when they expire,” according to Options Desk. “As a put seller, you have given someone else the right but not obligation to sell an underlying asset to you at a predetermined price up to a specific time in the future. It’s important to remember here that you are essentially giving someone else the right to sell to you an amount of an asset at a predetermined price so it can be costly for you (the writer/ (seller), especially if the underlying asset price falls sharply. Individual shares can fall very quickly, especially if the company announces a profit warning.”

NBOS Has Benefits

Likely due to the all attention commanded by call selling in the options space, the advantages of put writing, which are accessible via NBOS, often go overlooked. However, that doesn’t mean those benefits don’t exist. In fact, they ought to be more readily acknowledged.

Those perks include “premium income generation, which can serve as a buffer in down markets” and “potentially owning an underlying asset at a lower cost basis, courtesy of the premium collected,” added Options Desk. The first of those two points is more pertinent to investors considering ETFs like NBOS.

Additionally and importantly, put selling and ETFs such as NBOS are potentially more versatile than covered calls. Call writing is often best suited for flat markets. However, the same is true of selling puts with the added benefit of put writing historically generating more upside capture. That implies that NBOS doesn’t limit investors’ gains in bull markets as much as a covered call competitor does.

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