Maximizing Opportunities in Derivative Income

The derivative income space has grown tremendously over the last five years. Since the end of 2019 there has been a ten-fold increase in assets invested in derivative income ETFs and mutual funds, from $7bn to $73bn. Clearly, investors are seeking options to diversify their income sources to be less dependent on the Fed’s monetary policy.

derivative income

Many of these derivative income products are based on a covered call options strategy and contain at least one, if not several elements, which can be described as “passive management.” These include:

  • The underlying equity portfolio is based on an index, usually the S&P 500.
  • The options traded are options on an index, again, usually the S&P 500.
  • The way options are traded is very rote and systematic and does not adapt to market conditions.

Swan Global Investments strongly believes that investors are better served by active management in each of these three facets of a derivative income strategy.