Displaying items by tag: options

Derivative income ETFs are becoming more popular among financial advisors seeking reliable income amid ongoing market volatility. A 2024 Cerulli Associates report found that 15.2% of advisors are already using these strategies, with another 7% planning to adopt them soon. 

These ETFs, which generate income by selling options, have attracted over $55 billion in inflows across 2023 and 2024, with the strongest uptake seen in wirehouse channels. As inflation concerns and demand for consistent yield grow, product development is accelerating—6% of ETF issuers are actively building new funds and 13% are in planning. 

Advisors are also increasingly interested in defined outcome ETFs, which offer preset downside protection, though adoption remains more limited for now. 

Finsum: Overall, both categories reflect the shifting demand toward more predictable, income-focused solutions in today’s uncertain markets.

High-net-worth (HNW) investors often face challenges when managing concentrated stock positions, whether from stock grants, inheritance, or long-term holdings. Envestnet's new Options Strategy Quantitative Portfolio (QP) provides HNW clients with customizable strategies—covered calls, protective puts, and collars—to hedge against volatility while gradually reducing exposure. 

These options-based solutions help mitigate downside risk, generate income, and spread-out taxable gains, preventing large, sudden tax liabilities. Additionally, liquidity constraints on large holdings can make it difficult to sell shares without affecting market prices, making structured unwinding essential.

Envestnet’s strategy offers a scalable yet tailored approach, leveraging quantitative modeling to align with each investor’s risk tolerance and goals. 

Finsum: This offering enhances portfolio flexibility while preserving long-term wealth and could allow advisors to better target the needs of HNW needs. 

Nvidia's stock surge has had an outsized influence on the S&P 500 this year, accounting for nearly a quarter of the index's 17% gain. The company's 140% rise, driven by strong demand for its AI chips, has been a key market driver, with a single-day 8.2% rally lifting the S&P 500 to its biggest gain in almost two years. 

Investors are concerned that a downturn in Nvidia could drag the broader market down, as the index has struggled to rise on days when the chipmaker's shares decline. 

Nvidia’s dominance in the options market, where it accounts for up to 30% of daily stock options volume, has further amplified its stock movements. Analysts warn that if demand for Nvidia's products weakens, it could trigger a broader market sell-off.

Finsum: Investors need to consider how options plays can lead to better outcomes for their portfolios, and situational plays that compliment their current book.

(New York)

Momentum funds often get bad press. While they have obvious utility, a lot of people say they feed bubbles and are subject to very big losses from market corrections. That said, some funds have started to do an excellent job at both hedging and outperforming to the upside. While that might sound impossible, it is not as hard as it sounds. The key is to follow the market’s movement, but not try to predict it. In other words, in strongly upward markets, you position yourself very bullish (e.g. 200% exposure). In downward markets, you take an inverse or short exposure to profit from losses. In a decent market you simply stay at 100% long exposure. By using this approach you can participate it more of the upside and lose less on the downside.

FINSUM: This is a smart strategy and one that some momentum funds are using to outperform the market right now. It can be employed either by buying funds or with an options strategy.

(New York)

Covered calls are an old investing methodology, but one that does not get much attention. That said, employing covered calls can be a great income strategy. So what is a covered call? Simply put, it is the process of selling call options while simultaneously holding the underlying shares. The idea is to earn income from selling the call options, while hedging risk by holding the underlying shares. The ideal outcome is that the underlying share price rises but does not hit its strike price, yielding the seller both the income from selling the option and the capital appreciation of the shares.

FINSUM: In markets with big momentum this is not a great strategy, but in back and forth ones like those at present, it can be very effective for increasing income. There are a number of funds that also employ this strategy so you don’t have to do it manually.