SPYI ETF: Prepare For The Return Of Volatility

seekingalpha05-21

DNY59 Current market volatility is too low With the S&P VIX Index (VIX) currently hovering only around 12x, the market volatility is too low – abnormally low, in my view. To better contextualize ...

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To better contextualize ...</p>\n\n<a href=\"https://seekingalpha.com/article/4694632-spyi-etf-prepare-for-the-return-of-volatility\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>SPYI ETF: Prepare For The Return Of Volatility</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSPYI ETF: Prepare For The Return Of Volatility\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-21 05:55 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4694632-spyi-etf-prepare-for-the-return-of-volatility><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>DNY59 Current market volatility is too low With the S&P VIX Index (VIX) currently hovering only around 12x, the market volatility is too low – abnormally low, in my view. To better contextualize ...</p>\n\n<a href=\"https://seekingalpha.com/article/4694632-spyi-etf-prepare-for-the-return-of-volatility\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"FT_SY_VIX","symbol_name":"VIX波动率","start_time":0,"source_url":"https://seekingalpha.com/article/4694632-spyi-etf-prepare-for-the-return-of-volatility","article_id":"2437205438","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1391973547/image_1391973547.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2437205438","pubTimestamp":1716242144,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"DNY59 Current market volatility is too low With the S&P VIX Index (VIX) currently hovering only around 12x, the market volatility is too low – abnormally low, in my view. To better contextualize thing","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"UVXY":"1.5倍做多波动率指数短期期货ETF-ProShares","FDN":"First Trust Dow Jones Internet I","BK4232":"货物陆运","SVXY":"0.5倍做空波动率指数短期期货ETF","VIXY":"波动率短期期货指数ETF","VXX":"短期VIX期货ETN","R":"瑞德系统","SPYI":"NEOS S&P 500 High Income ETF","BK4585":"ETF&股票定投概念","BK4022":"陆运","TVIX":"二倍做多VIX波动率指数短期期权ETN"},"translate_title":"SPYI ETF：为波动性回归做准备","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"FDN":1,"R":1,"SPYI":1,"US3Y.BOND":0.9,"VXX":0.9,"US7Y.BOND":0.9,"US6M.BOND":0.9,"US5Y.BOND":0.9,"US30Y.BOND":0.9,"US2Y.BOND":0.9,"US10Y.BOND":0.9,"TVIX":0.9,"US12M.BOND":0.9,"VIXY":0.6,"UVXY":0.6,"US912797HE00.BOND":0.6,"US912797GW17.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GK78.BOND":0.6,"US912797GB79.BOND":0.6,"US912797FS14.BOND":0.6,"US912797FH58.BOND":0.6,"VIXmain":0.6,"SVXY":0.6},"content_text":"DNY59 Current market volatility is too low With the S&P VIX Index (VIX) currently hovering only around 12x, the market volatility is too low – abnormally low, in my view. To better contextualize things, as illustrated by the chart below, it is among the lowest level in the past 52 weeks. To broaden our horizon a bit more, the median level for the VIX index in the long term (say the past 20 years) is around 16.5x. A VIX index of 12x is among the bottom 20% percentile of the index’s historical track record over the period. In other words, the VIX is only at or below the current level about 20% of the time in the past 2 decades.   Seeking Alpha Against this background, the thesis of this article is twofold. First, I will explain why I anticipate heightened market volatility ahead. And second, I will explain why a fund like Neos S&P 500(R) High Income ETF (BATS:SPYI) could be a sound investment idea if this indeed happens. Why VIX could increase Let me start with my anticipation for VIX to rise. First and foremost, the volatility index itself is highly volatile (that is, it is random). And like all other things random, it has a mathematical tendency to revert to the mean when it is pulled too far away from it – like now. I just mentioned that in the long run (say, 2 decades) the mean is about 16.5x. In the more recent and thus more relevant history, say the recent 5 years, the mean is even higher. As seen in the chart below, over the past 5 years, the average VIX is more than 21x.   Seeking Alpha Many factors contributed to such a higher VIX on average recently, such as COVID, heightened geopolitical conflicts, trade tensions, et al. And as analyzed in my earlier article (with the key points quoted below), I anticipate these factors to create consideration number of uncertainties and increase the market volatility in the near future: I am sensing heightened macroeconomic uncertainties given our persisting inflation and the Fed’s future policies. The recent change in the market’s expectation for interest rate cuts by the Federal Reserve has spooked investors and caused a large rise in the VIX as seen in the chart below. To wit, the VIX index surged to around ~20 following March’s hotter-than-expected CPI data. Then finally, I also see more geopolitical tensions since my last writing. The tensions at that time were still dragging on with no end in sight (such as the Russia/Ukraine war). Then there are new conflicts emerging such as those between Israel and Hamas. The upcoming presential election in the U.S. adds another element of uncertainty.  SPYI ETF can help Next, I will argue why a fund like SPYI could be a sound investment idea if the VIX indeed increases. The gist really lies in SPYI’s use of options. More specifically, as described in SPYI’s fund facts below (the emphasis was added by me): SPYI aims to generate high monthly income by investing in the constituents of the S&P 500 Index and implementing a data-driven call option strategy. SPYI utilizes SPX index options classified as section 1256 contracts (60% long term/40% short term) and Fund managers may seek to take advantage of tax loss harvesting opportunities. Professional options management Leverage the deep expertise and research of NEOS combining decades of experience managing options-based ETFs.  With call options, SPYI receives a fixed amount of premium income upfront, which provides the dominant portion of its dividend payouts (as the underlying SP500 index yields only about 1.4% currently). The premium it receives increases with increasing market volatility, thus effective providing a hedge against higher VIX. To sweeten the deal a bit more, the current dividend yield for SPYI is already quite attractive to start with. It is yielding 11.74% in absolute terms. Given the fund’s limited history (it was only launched in 2022), it does not provide enough data to benchmark its current yield against its historical averages. Thus, here I will use two other similar funds with longer history (SPXX and XYLD, both use call option to generate high income as SPYI) for this purpose. As seen in the chart below, the current dividend yield for SPXX is 7.45%, which is noticeably higher than its 4-year average dividend yield of 6.88%. The data from XYLD paints the same picture. Although investors should not compare these funds’ yield horizontally on their face value despite their common use of the option strategy. SPYI’s yield is the highest among these 3 simply because it uses more of its underlying assets to cover the calls. The upside is higher yield, but the downside is more limited capital appreciation potential if the market goes up, as detailed more next.   Seeking Alpha Other risks and final thoughts As already mentioned, a generic downside risk for SPYI (which is a risk common to other peer ETFs that use the option strategy) is the limit of upside appreciation potential. In exchange for the option premium, SPYI’s underlying shares will be called away if their prices exceed the pre-agreed strike price, thus putting a cap on the upside appreciation potential of its shares. Besides this generic risk, there are also some risks that are more particular to SPYI in my view. First, PSYI charges an expense ratio of 0.68% - quite standard among similar funds. However, 0.68% is a lot when benchmarked against other standards. For example, many large passive index SP500 funds charges fees close or below 0.1% these days. And 0.68% represents about 6% of its current dividend yield already. Second, if you recall from the fund description, SPYI utilizes a data-driven, active management approach for its options strategy. Thus, the fund’s key competitive advantage over its peers hinges on the effectiveness of that model, in my view. But unfortunately, the fund only has a limited track record so far compared to more established covered call strategies, and it is difficult to evaluate the effectiveness of its strategy. Although the limited amount of data available so far shows that SPYI has outperformed some of its peers as shown in the chart below. All told, I think it is overall a sound idea to consider SPYI under the current conditions. The yield is quite high to start with, either by absolute or relative standard. Given that the current VIX index is near the low levels historically, I see larger odds for the option premium and thus Neos S&P 500(R) High Income ETF’s income to increase rather than decrease. These considerations render SPYI to be a good hedge against heightened market volatility, which is quite likely in my view given the ongoing macroeconomic and geopolitical uncertainties.    SPYI fund description","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2437205438"}