SPYI: Not The Right Time To Buy, ISPY Is A Better Income Alternative

seekingalpha07-25

Eoneren Introduction S&P 500 falls hard on July 24, down by more than 2%, in response to Wednesday's PMI numbers which show mixed signals for the US economy. It is a good idea to hold the horses for a...

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It is a good idea to hold the horses for a...</p>\n\n<a href=\"https://seekingalpha.com/article/4706504-spyi-etf-not-right-time-to-buy-ispy-better-income-alternative\">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: Not The Right Time To Buy, ISPY Is A Better Income Alternative</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: Not The Right Time To Buy, ISPY Is A Better Income Alternative\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-07-25 20:04 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4706504-spyi-etf-not-right-time-to-buy-ispy-better-income-alternative><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Eoneren Introduction S&P 500 falls hard on July 24, down by more than 2%, in response to Wednesday's PMI numbers which show mixed signals for the US economy. It is a good idea to hold the horses for a...</p>\n\n<a href=\"https://seekingalpha.com/article/4706504-spyi-etf-not-right-time-to-buy-ispy-better-income-alternative\">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":"CC","symbol_name":"Chemours Company","start_time":0,"source_url":"https://seekingalpha.com/article/4706504-spyi-etf-not-right-time-to-buy-ispy-better-income-alternative","article_id":"2454287106","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1305100623/image_1305100623.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2454287106","pubTimestamp":1721909065,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Eoneren Introduction S&P 500 falls hard on July 24, down by more than 2%, in response to Wednesday's PMI numbers which show mixed signals for the US economy. It is a good idea to hold the horses for a","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"CC":"Chemours Company","SDS":"两倍做空标普500ETF","BK4504":"桥水持仓","FDN":"First Trust Dow Jones Internet I","BK4098":"多种化学制品","JEPY":"Defiance S&P 500 Enhanced Options Income ETF","OEF":"标普100指数ETF-iShares","JEPI":"JPMorgan Equity Premium Income ETF","SSO":"两倍做多标普500ETF","SH":"标普500反向ETF","VOO":"Vanguard标普500ETF","BK4534":"瑞士信贷持仓","ISPY":"PROSHARES S&P 500 HIGH INCOME ETF","BK4585":"ETF&股票定投概念","JEPI.AU":"JPMORGAN EQ PREM INCOME ACTIVE ETF","BK4581":"高盛持仓","SPXU":"三倍做空标普500ETF",".SPX":"S&P 500 Index","SPY":"标普500ETF","BK4559":"巴菲特持仓","BK4588":"碎股","BK4550":"红杉资本持仓","UPRO":"三倍做多标普500ETF","IVV":"标普500指数ETF","OEX":"标普100","SPYI":"NEOS S&P 500 High Income ETF"},"translate_title":"SPYI：现在不是购买的合适时机，ISPY是更好的收入选择","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ISPY":1,"SPYI":1,"JEPY":1,"JEPI.AU":1,"JEPI":1,"CC":1,"VOO":0.9,"SPY":0.9,"FDN":0.9,"US912797GW17.BOND":0.6,"SSO":0.6,"UPRO":0.6,"US10Y.BOND":0.6,"US12M.BOND":0.6,"US2Y.BOND":0.6,"US912797HE00.BOND":0.6,"US7Y.BOND":0.6,"US912797GL51.BOND":0.6,"US30Y.BOND":0.6,"SDS":0.6,"US3Y.BOND":0.6,"US912797GK78.BOND":0.6,"US5Y.BOND":0.6,"US6M.BOND":0.6,"SPXU":0.6,"SH":0.6,".SPX":0.6,"OEX":0.6,"OEF":0.6,"IVV":0.6,"ESmain":0.6},"content_text":"Eoneren Introduction S&P 500 falls hard on July 24, down by more than 2%, in response to Wednesday's PMI numbers which show mixed signals for the US economy. It is a good idea to hold the horses for a little while; the downtrend duration also offers a proper time for investors to examine portfolios and watchlists and figure out better strategies to handle the other side of the S&P 500 market. NEOS S&P 500 High Income ETF (BATS:SPYI) is an interesting ETF that derives double-digit monthly income from S&P 500 stocks by selling daily covered call (CC) for those stocks. While the income is enticing enough for income investors to notice, the CC-driven approach will work poorly in a market downtrend. On the other hand, Defiance S&P 500 Enhanced Options Income ETF (JEPY), based on the same underlying S&P 500 index portfolio, offers much higher monthly income (33% yield) streams by selling daily PUT options. The PUT selling approach is expected to be a better fit in a downtrend market. I rate both SPYI and JEPY as HOLD. ETF Overview SPYI is an active ETF from NEOS with the following official goal statement The Fund seeks to distribute high monthly income generated from investing in the constituents of the S&P 500 Index and implementing a data-driven call option strategy. More specifically, SPYI deploys SPX Index options which use \"Cash settled European style options exercise at expiration, unlike American style, which may be exercised OTM after market close\", according to cboe.com. The portfolio is the same as S&P 500 SPY with the following holding information, shown below: SPYI Holding Information - from SA The current total number of holdings is actually 509, not exact 500. The top 10 constituents are 35.69% of the portfolio. Notice that the top 6 are the \"Magnificent 7\", plus Tesla, which is inched out to the 8th place. Notice the technology sector is heavy with 33.03%. Keep in mind that some big technology companies are not under Technology sector, they are categorized as Communication (services), including Google, Meta and Netflix (not in the top 10) to name a few. S&P 500 companies are viewed as the largest companies in the US. \"The S&P 500 is seen as a gauge of the stock market itself\" according to businessinsider.com. I will summarize some key SPYI ETF characteristics below, with my key analysis given under \"WISE Edge Analysis\":  Option Income Strategy: Selling SPX Index call options, which is classified as section 1256 contracts, 60% taxed as long-term, and 40% as short-term. Total Assets (AUM): $1.74B. SPYI has a large asset base right now, indicating its high popularity. Volume: 949,325. Inception: August 29, 2022 Yield 12.08%. It is a monthly distribution with high yield. Expense Ratio: 0.68%. It is a reasonable cost for a so-called \"data-driven\" approach.  WISE Edge Analysis: SPYI is a typical CC-based option income ETF. The ETF also holds long call to improve the price appreciation capped by the sold CC. The SPX index options have enough volumes to facilitate a sustainable income stream. The tax benefits are attractive to tax-sensitive investors. It may not be a key differentiator for the buy decision.  S&P 500 Option Income Strategy brings many ETFs with different outcomes For analysis purposes, I will list three more S&P 500 option income ETFs with my \"Wise Edge Analysis\" as the ending points below: JEPY is an active ETF managed by Defiance. The following investment objectives can be found on the Defiance website: The strategy’s objective is to generate outsized monthly distributions by selling option premium on a daily basis. The fund uses daily options to realize rapid time decay by selling in the money puts. JEPY uses the same SPY as the underlying portfolio, but it deploys a different put-selling option strategy to produce income. The following points provide a more detailed description of the fund strategy and market characteristics.  Option Income Strategy: Daily PUT write on S&P500 Index. The strategy will be able to provide reproduceable, sustainable, and highly manageable income streams. Total Assets (AUM): $117.92M Volume: 161,911 Inception Date: September 18, 2023. It is a new ETF. More time is needed to validate the strategy. Yield: 33.76%. The monthly distributed super yield is the main attraction to income seekers. Expense Ratio: 0.99%. It is higher than SPYI.  WISE Edge Analysis: The daily PUT-writing is technically a more efficient way than Call-writing to capture volatility premium. Dividend distribution is highly sustainable depending on the striking price. The price recovery is largely limited during uptrend. (Partial) Reinvesting is required to keep total returns outperforming. During a downtrend, the strategy should perform better in general because the down-side risk is factored on a daily basis (overnight), and is more manageable than the covered call strategy which has no effect on the downside move.  ProShares S&P 500 High Income ETF (ISPY)  Option Income Strategy: Selling Daily Covered Calls via \"CALL ONLY SWAP G GOLDMAN SACHS\" Total Assets (AUM): $226.31M. It is a new ETF with relatively small trading volume. Volume: 72,232 Yield: 5.2% (x2). 5.2% is for the trailing 6 months. Expense Ratio: 0.55%. Inception Date: December 18, 2023.  WISE Edge Analysis: From a volatility perspective, the daily covered calls offer better premiums than the longer monthly calls. It is not entirely clear how much is paid for the SWAP deal, but could be already reflected in the (lower) Expense Ratio.  JPMorgan Equity Premium Income ETF (JEPI). The ETF does not directly use the S&P 500 portfolio, but its 128 holdings are tracking the total return of the S&P 500 Index. JEPI has been gaining quite a reputation in the investment communities, judging from its size and trading volumes.  Option Income Strategy: Sell covered calls on the holdings via Equity Linked Notes (ELNs). Total Assets (AUM): $33.99B. It is the largest ETF of its kind. Very popular. Volume: 2,956,945. High trading volume. Yield: 7.26%. Monthly distributions are deteriorating. Expense Ratio: 0.35%. Inception Date: May 20, 2020.  WISE Edge Analysis: The equal-weight structure seems to hurt JEPI's price performance as well as the premiums, which are capped away from the more volatile market leaders in S&P 500. Simply put, the fundamental-driven approach is not a good fit for the option market characteristics. This has directly resulted in the decreased distributions over the months. Also, the selections of the holdings are at the mercy of the management's judgement, which has introduced the more uncertainty than S&P 500 as a whole.  The following is a chart showing the price performance for all 4 ETFs since the beginning of 2024. Price Comparison for SPYI, JEPI, ISPY, JPEY - from SA charting It can be seen clearly that ISPY has consistently outpaced the rest of them in price gains. Although the graph does not have enough history to draw a stronger conclusion and the history does not really suggest the future result, one can still glimpse the subtle differences in the fund strategies. Notice that the option-based strategy can be executed by a rule-based process, so the difference shown above could actually be used as an effective monitor to check the fund operation and its management, which could make significant differences in the fund performance in the long run. The timing is not right for the option income ETF There are probably more option income ETFs out there with S&P 500 underlying. However, all CC-based strategies have suffered from the same problem - there is no downside protection. In other words, those ETFs will see the same price drop as the underlying during market downturns. This is one of the main reasons why I don't recommend buying those CC income ETFs. The following SA quant rating reveals the weak price behavior for SPYI: SPYI SA Quant Rating and Grades - from Seeking Alpha Notice that Momentum is ranked C while the Quant Rating stands at SELL. I have a HOLD rating on SPYI at the moment. Technical of the underlying SPY looks very weak. In addition, SPYI's price is on the verge of breaking the 50-day moving average. Bulls may want to wait until it holds solidly above the average before purchasing it for income. The verdict should come out in a few days given the volatile price moves we have been seeing in recent days. Bears may want to wait for the solid red flag (breaking 50 day MA decisively) to pull the trigger. On the other hand, I rate JEPY as HOLD as well, with a small bias toward BUY for the current downtrend. Its PUT selling is inherently risk adjustable on a daily basis. It should weather the downside better than the CC-based ETFs. And the high income can be treated as naturally profit-taking to preserve the capital against a significant price downtrend for S&P 500. Closing Thoughts with Risk Comments Note that the option income ETFs are new, some with about 1 year's history. While the option trading strategies are time proven and have a solid base for the rule-driven process, the execution efficiency from the ETF's management is still unproven yet. Some ETFs deploy some VIX-dependent schemes to determine the strike prices. This will also need to be operated in high-VIX time to make adjustments.  The current market does not warrant favorable conditions for option-based strategy. The sharp downside swing like the one on July 24 will create enormous price erosion that could take a long time to recover, resulting in severe underperformance in total returns compared to the broad market, e.g. the underlying S&P 500. I have a HOLD rating on both SPYI(Call-based) and JEPY (Put-based) right now. I recommend bulls to wait until the market completes the current pullback.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":2,"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":"4.29.0","shortVersion":"4.29.0","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/2454287106"}