Turn Volatility Into Income With These Top Option-Income ETFs

| December 4, 2024
Source: Pixaby

In February, we launched the ETF Income Edge service to help investors sort through the rapidly growing world of high-yield (mostly) option-strategy ETFs. To find the best ETFs to recommend to subscribers, I maintain a database of this type of fund. As I write this, I have 82 option strategy ETFs on my results tracking spreadsheet. I think some big-picture information about these funds may get you interested in subscribing to our newsletter. For example:

·       Two of the ETFs launched in 2007.

·       The subsequent IPO of this type of fund came in 2014, six years later.

·       By the start of 2020, there were 18 covered call ETFs.

Jumping up to the present, fund sponsors have launched 31 new option-strategy ETFs in the last year. That gives us more than 30 funds that do not yet have a one-year track record.

While the older ETFs tend to follow similar covered call strategies with small variations, the new crop of ETFs has become very creative. One effect has been funds with eye-popping distribution yields. Yields of 20% to 50% and even higher are available.

The question becomes whether the ETFs can pay these yields and sustain principal or NAV values. My tracking list includes many examples where the total return falls well short of the distribution yield. For example, the Defiance R2000 Enhanced Options Income ETF (IWMY) sports a 51% yield but has a one-year total return of just 15.7%.

However, some ETFs in this category earn their dividend yields and give investors capital appreciation. I seek out those funds to add to the recommended portfolio of my ETF Income Edge service.

For your research, here are a couple of newer ETFs that have the potential for attractive returns:

·   Defiance S&P 500 Income Target ETF (SPYT)

·   Defiance Nasdaq 100 Income Target ETF (QQQT)

These two funds are managed to pay a 20% distribution yield. They have only been in the market for a handful of months, so it will take time to see how the strategies work.

This post originally appeared at Investors Alley.

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Category: Dividend Yield

About the Author ()

Tim Plaehn is the lead investment research analyst for income and dividend investing at Investors Alley. He is the editor for The Dividend Hunter, an investment advisory delivering income investments with double digit growth in share price and dividend payments, and 30 Day Dividends, a specialty income service that takes advantage of opportunities for relatively fast, attractive profits around potential dividend payouts.

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