Gold ETF Generates 12% Monthly Income Through Options Trading
The NEOS Gold High Income ETF (IAUI) offers investors a way to generate monthly income from gold, an asset that typically produces no dividends or interest payments. The fund uses options trading to convert some of gold's volatility into cash flow, resulting in a distribution rate of 11.98%. This strategy allows IAUI to monetize the price movements of gold without requiring physical ownership.
IAUI obtains its underlying exposure through spot gold ETFs, which provide investors with access to the price movements of physical gold without the need for direct ownership or storage. The fund's options overlay involves selling and purchasing calls and puts on gold ETFs, allowing managers to construct multi-leg option positions that can reshape the resulting payoff.
The income generated by IAUI comes from the premiums earned from selling options, while purchasing other options can limit risk or restore exposure beyond a particular strike. However, this strategy also means that investors may surrender some potential gains in gold's price appreciation.