NEOS Nasdaq-100 High Income ETF (NYSEARCA:QQQI) Combines 14% Yield with 7% NAV Growth

NEOS Nasdaq-100 High Income ETF (NYSEARCA:QQQI) Combines 14% Yield with 7% NAV Growth

Covered Call Strategy on Nasdaq-100 Powers Monthly Income and Equity Upside Capture

The NEOS Nasdaq-100 High Income ETF has engineered a nuanced overlay on the Nasdaq-100 index, writing covered calls to harvest option premiums and then selectively purchasing out-of-the-money calls. This dual-layered approach generated a trailing-twelve-month dividend yield of 13.98%, equating to distributions of approximately $0.64 per share in its richest month and never dipping below $0.58. By leaning into the Nasdaq-100’s average implied volatility of 22%, QQQI has turned market gyrations into a stable income stream. Institutional flows have totaled $1.2 billion since inception, underscoring growing investor demand for yield in a low-rate environment.

Steady 13.98% Dividend Backed by Volatility-Driven Option Premiums

At each monthly roll, QQQI sold an average notional of $5.4 billion in NDX calls struck 5% above the index price, collecting roughly $60 million in gross premiums. After commission and hedging costs of 0.16%, net receipts have funded a consistent payout cadence. The fund’s option premiums peaked at $75 million during June’s volatility spike, yet maintained disciplined strike selection to avoid deep in-the-money exercises. This has translated into a yield cushion of 4.2% above the 10-year Treasury, attracting income-seeking allocators.

NAV Appreciation of 7% Since Inception Sustains Future Payout Potential

Since January 2024, QQQI’s net asset value advanced from $25.00 to $26.75, a 7% gain that contrasts with typical covered-call NAV erosion. The growth stems from disciplined delta hedging and an annual reconstitution that trimmed under-performing names, allowing the fund to participate in 98% of QQQ’s 24.3% total return last year. This NAV accretion expands the notional base for future option writing from $4.8 billion to $5.2 billion, setting the stage for sustained high distributions without capital drawdown.

Capturing 98% of QQQ Returns Highlights Strategy Effectiveness

During the 24.29% rally in QQQ over the past year, QQQI delivered a 23.82% total return, equating to a 98% capture ratio. This near-par upside participation arises from the fund’s out-of-the-money call purchases, which offset the capping effect of its covered calls. In flat or modestly down markets (QQQ drawdowns between 0–5%), QQQI outperformed by 150 basis points on average, thanks to net credit from option premium income. This asymmetric payoff profile underscores why yield-focused investors still secure meaningful equity exposure.

Tax-Efficient Section 1256 Contracts Boost After-Tax Income

QQQI’s use of Section 1256 NDX options classifies 60% of gains as long-term capital gains and 40% as short-term, regardless of holding period. This blended tax rate typically falls below the investor’s ordinary income bracket, enhancing after-tax yield by an estimated 1.1 percentage points. Additionally, the fund strategically harvests losses in under-water call spreads to offset gains, further improving its net distribution efficiency. Those in the 35% tax bracket could see an effective tax drag of just 18% versus 24% on ordinary FDIC savings.

Peer Comparison Shows QQQI Outpaces JEPQ and QYLD Over 12 Months

Among the largest Nasdaq-100 covered-call ETFs, QQQI led with a 23.82% return over the last year, eclipsing JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) at 17.64% and Global X NASDAQ 100 Covered Call ETF (QYLD) at 10.71%. While QYLD’s at-the-money calls generated higher premium income early in the year, its NAV declined 5.3%, whereas QQQI’s dynamic strike management preserved capital. JEPQ, which allocates only 50% to covered calls, offered lower yield but higher upside capture (102% of QQQ); QQQI’s balanced tilt delivered both yield and equity participation.

Investor Suitability: Income Focus with Moderate Equity Participation

QQQI is tailored for investors prioritizing monthly income of 1.15% distributions, balanced with 98% upside capture of a growth index. Those nearing retirement or seeking substitute for high-yield bond funds will find the 14% yield and 7% NAV growth compelling, especially given QQQI’s 0.68% expense ratio. However, in a ≥15% drawdown scenario for QQQ, QQQI could underperform by 200 basis points due to option short gamma exposure. Allocators should pair QQQI with traditional equity or fixed-income holdings to manage downside risk, targeting a strategic 10% weighting in a 60/40 portfolio.

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