Create Your Own Dividends in Volatile Times

This analysis contrasts options-based income strategies, highlighting the JPMorgan Equity Premium Income ETF (JEPI), which offers an 8.5% TTM yield with lower volatility, against the YieldMax Ultra Option Income Strategy ETF (ULTY), which, despite a 129% TTM yield, has experienced a 47% drawdown. The author advocates for direct options selling, particularly covered calls, over these ETFs, noting that high volatility, as measured by the CBOE Volatility Index (VIX), is crucial for generating attractive premiums. While the VIX is currently below 15, limiting attractive opportunities, the author anticipates future spikes above 20 will create more favorable selling conditions for income generation.

Analysis

The analysis contrasts two distinct options-based income ETFs, highlighting a significant divergence in their risk-reward profiles. The JPMorgan Equity Premium Income ETF (JEPI) is presented as a conservative choice, offering a substantial 8.5% trailing twelve-month (TTM) yield while aiming to track the S&P 500 with lower volatility. In stark contrast, the YieldMax Ultra Option Income Strategy ETF (ULTY) pursues a highly aggressive income strategy, evidenced by a 129% TTM yield, but this has been accompanied by a severe 47% capital depreciation over the past twelve months. The core argument favors direct options selling, specifically covered calls, over managed funds for more granular control. The viability of this strategy is directly linked to market volatility, measured by the CBOE Volatility Index (VIX). Currently, with the VIX having fallen below 15, conditions are unfavorable for collecting attractive options premiums, but an expectation is set for volatility to rise above the 20 level later in the year, which would create more opportune entry points for options sellers.

Key Decisions for Investors

• Investors should be extremely cautious with ULTY, as its headline 129% TTM yield is overshadowed by a 47% capital loss, indicating a high risk of principal erosion.
• JEPI may be considered for investors seeking managed exposure to options-based income with a more conservative risk profile, but it should be viewed as a tactical tool for short-term income rather than a core long-term holding.
• For investors experienced with derivatives, monitoring the CBOE Volatility Index (VIX) is critical; attractive opportunities to sell options for premium income are likely to emerge when the VIX rises above 20, a condition not currently met.
• Given the complexity and capital requirements of options strategies, investors with smaller portfolios or less experience should consider whether an ETF like JEPI is a more suitable vehicle for gaining exposure than direct options trading.