QQQI: Seeking Income as the Outcome

QQQI from NEOS Investments aims to offer investors a distinctive combination of income and growth potential, with a keen focus on tax efficiency.

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The search for investment income can take many forms, including various strategies centered on options trading. And options are the foundation of the growing exchange-traded fund family at NEOS Investments. The firm, whose name is an acronym for “next evolution of options strategies,” has launched four actively managed options-based products aimed at delivering high monthly income.

Their newest offering is the NEOS Nasdaq-100 High Income ETF (QQQI). The fund aims to generate monthly income by investing in the constituents of the Nasdaq-100 Index and implementing a data-driven call option strategy consisting of selling, or “writing” call options on the Nasdaq-100 Index. Options are financial derivatives that give buyers the right, but not the obligation, to buy or sell an underlying asset at an agreed-upon price and date.

How QQQI Works

QQQI offers investors a distinctive combination of income and growth potential, with a keen focus on tax efficiency, representing a significant shift from traditional methods. Firstly, QQQI seeks monthly income through the premiums accrued from NDX call options and dividends earned from the fund's equity holdings. QQQI also aims to provide an avenue for growth when there's an appreciation in the underlying Nasdaq-100 index value. The fund seeks to achieve this by writing calls that are out of the money, not covering the entire value of the equity portfolio with written calls, and when indicated by QQQI’s data-driven option model, a long call may be purchased. This unique facet may distinguish QQQI from standard covered call strategies, which typically limit profit potential.  

Managing the tax implications of investments can have a big impact on overall returns, and QQQI aims to offer tax efficiency in various ways. First, there’s the inherent tax-efficient nature of the ETF structure. In addition, NDX index options are classified by the IRS as Section 1256 contracts. These contracts may qualify for favorable tax treatment as the typical practice is to treat 60% of any gains or losses as long-term capital gains, and the remaining 40% as short-term, regardless of how long the contract positions were held.

Finally, NEOS may seek to take advantage of tax-loss harvesting opportunities on its NDX call options and/or equity positions by taking investment losses from certain equity and/or options positions to offset realized taxable gains of equities and/or options.

NEOS: ETF Options Experts

The NEOS Investments team are pioneers in the options-based ETF space with decades of combined experience. Previously, the team launched and managed some of the largest options-based ETFs still currently in the market.

Their mission is to help investors succeed in any market environment by employing large-scale data analysis that incorporates both current and historical market factors. This is aimed at allowing NEOS’ products to evolve with future market developments.

NEOS believes that QQQI can complement existing Nasdaq-100 positions in investor portfolios while pursuing high monthly income and tax efficiency, in addition to long-term growth potential. Or it can be an alternative allocation to existing equity income-focused investments that may offer a greater level of tax efficiency and less sensitivity to traditional risks faced by income-oriented investments. 


Disclosures:

Investors should carefully consider the investment objectives, risks, charges and expenses of Exchange Traded Funds (ETFs) before investing. To obtain an ETF's prospectus containing this and other important information, please call (866) 498-5677 or view/download a prospectus here: QQQI. Please read the prospectus carefully before you invest.

Investors in the fund should be willing to accept a high degree of volatility in the price of the fund’s shares and the possibility of significant losses.

An investment in NEOS ETFs involve risk, including possible loss of principal. The equity securities purchased by the Funds may involve large price swings and potential for loss.

The use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. These risks include (i) the risk that the counterparty to a derivative transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. The use of leverage by the Fund, such as borrowing money to purchase securities or the use of options, will cause the Fund to incur additional expenses and magnify the Fund’s gains or losses. The earnings and prospects of small and medium sized companies are more volatile than larger companies and may experience higher failure rates than larger companies. Small and medium sized companies normally have a lower trading volume than larger companies, which may tend to make their market price fall more disproportionately than larger companies in response to selling pressures and may have limited markets, product lines, or financial resources and lack management experience. The funds are new with a limited operating history.

The Nasdaq-100 Index (NDX®) defines today’s modern-day industrials—comprised of 100 of the largest and most innovative non-financial companies listed on the Nasdaq Stock Market based on market capitalization.

The Cboe NASDAQ-100 BuyWrite Index (BXN) is a benchmark index designed to track the performance of a hypothetical buy-write strategy on the NASDAQ-100. The BXN is a passive total return index based on (1) buying a NASDAQ-100 stock index portfolio, and (2) “writing” (or selling) the near-term NASDAQ-100 (NDX) Index “covered” call option, generally on the third Friday of each month. The NDX call written will have about one month remaining to expiration, with an exercise price just above the prevailing index level (i.e., slightly out of the money). The NDX call is held until expiration and cash settled, at which time a new one-month, near-the-money call is written.

Covered Call Option Writing Risk. By writing covered call options, in return for the receipt of premiums, the Fund will give up the opportunity to benefit from potential increases in the value of the Nasdaq-100® above the exercise prices of such options, but will continue to bear the risk of declines in the value of the Nasdaq-100®. The premiums received from the options may not be sufficient to offset any losses sustained from the volatility of the underlying stocks over time. In addition, the Fund’s ability to sell the securities underlying the options will be limited while the options are in effect unless the Fund cancels out the option positions through the purchase of offsetting identical options prior to the expiration of the written options. Exchanges may suspend the trading of options in volatile markets. If trading is suspended, the Fund may be unable to write options at times that may be desirable or advantageous to do so, which may increase the risk of tracking error.

Derivatives Risk. The Fund’s use of derivatives may reduce the Fund’s returns or increase volatility. Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantly in price within a short time period. Derivatives may also be subject to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligation. Counterparty risk for over-the-counter (“OTC”) derivatives is generally higher than that for derivatives traded on an exchange or through a clearing house. A risk of the Fund’s use of derivatives is that the fluctuations in their values may not correlate perfectly with the value of the underlying asset, the performance of the asset class to which the Fund seeks exposure or the performance of the overall markets. The possible lack of a liquid secondary market for derivatives and the resulting inability of the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could make derivatives more difficult for the Fund to value accurately. The Fund could also suffer losses related to its derivatives positions as a result of unanticipated market movements, or movements between the time of periodic reallocations of Fund assets, which losses are potentially unlimited. Certain derivatives may give rise to a form of leverage and may expose the Fund to greater risk and increase its costs. The impact of U.S. and global regulation of derivatives may make derivatives more costly, may limit the availability of derivatives, may delay or restrict the exercise by the Fund of termination rights or remedies upon a counterparty default under derivatives held by the Fund (which could result in losses), or may otherwise adversely affect
the value or performance of derivatives.

Options Risk. There are risks associated with the sale and purchase of call and put options. As a seller (writer) of a put option, the Fund will tend to lose money if the value of the reference index or security falls below the strike price. As the seller (writer) of a call option, the Fund will tend to lose money if the value of the reference index or security rises above the strike price. As the buyer of a put or call option, the Fund risks losing the entire premium invested in the option if the Fund does not exercise the option.

The information on this website does not constitute investment advice or a recommendation of any products, strategies, or services. Investors should consult with a financial professional regarding their individual circumstances before making investment decisions. NEOS Funds or its affiliates, nor Foreside Fund Services, LLC, or its affiliates accept any responsibility for loss arising from the use of the information contained herein.

NEOS ETFs are distributed by Foreside Fund Services, LLC.

 

NEOS ETFs aim to deliver the next evolution of options strategies, where seeking income is the outcome. Built on decades of research and experience, NEOS ETFs aim to empower the investor with portfolio building blocks to provide high income, tax efficiency, and diversification through data-driven options-based ETFs.