With an 8% yield and downside protection, NUSI seems like a compelling dividend income ETF. We'll break down its strategy and compare it to QYLD to see which is the ultimate dividend investing ETF!

00:00 - Intro
1:15 - NUSI ETF Holdings
1:58 - NUSI Options Explained (Protective Net-Credit Collar)
2:21 - 1. The Covered Call
4:30 - 2. The Protective Put
5:22 - The NUSI Dividend Strategy
5:51 - When to Invest in NUSI vs. QYLD
8:06 - NUSI vs QYLD Performance
8:37 - NUSI Taxes & Return of Capital
10:22 - Final Thoughts: NUSI, QYLD, QQQ and Options Strategies

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NUSI uses something called a protective net credit-collar on the Nasdaq 100 index. To start, NUSI invests in the 100 largest stocks by market cap trading on the Nasdaq, excluding financial stocks, which is also the approach that the QYLD ETF uses.

The NUSI ETF uses a two-step options strategy to generate cash flow from its Nasdaq 100 holdings, which allows investors to collect monthly dividends while also benefiting from some of the upside potential of the underlying stocks. The protective net-credit collar is made up of two steps: first selling a covered call, and then buying a protective put strategy.

NUSI sells a covered call on the entire Nasdaq 100 index rather than individual holdings. This has a few key differences from selling covered calls on shares. First, these call options will be settled in cash, not by selling the underlying shares to the buyer. Second, unlike stock call options, index call options cannot be exercised early. The one risk with this strategy is that you pretty much eliminate any chance of capital appreciation, because you are capping your potential gains at the strike price you select for the call option.

The second component of the NUSI strategy is known as a protective put option. They’ll use cash they earn from selling the covered call to purchase one of these options, which provides downside protection. This is a unique component to the fund that we don’t see in QYLD or other covered call ETFs.

Whatever cash is leftover is paid out to investors via a monthly dividend distribution. The fund will also distribute capital gains via dividends on an annual basis. If there is any premium leftover above their targeted distribution rate, they’ll reinvest it into their underlying holdings.

In a rising market, the fund managers have the ability to close out these covered call positions early. So, if it looks like the underlying holdings of NUSI are going to increase significantly, they can close out the call option and prevent making that cash settlement at the end of the month. With this strategy, they can uncap the growth of their holdings, enabling investors to benefit from some of the capital appreciation that you completely miss out on with QYLD.

In a falling market, NUSI should outperform other covered call strategies. Its protective put component will limit portfolio loss while continuing to provide dividends for investors.

In a flat market, both of these funds will generate dividends for investors while the underlying assets may not be producing returns, which could be a great way to earn returns in an uneventful market. QYLD is likely to outperform NUSI in these cases, because it’s not using its premium to buy protective puts.

As an options-driven income strategy, the NUSI ETF has some important tax implications for investors. Ordinarily, the cash settled index options used by NUSI are taxed 60% at the long-term capital gains tax rate and 40% at the short-term capital gains tax rate. However, if NUSI distributes capital gains to investors, these could be taxed at short-term or long-term rates. So you could actually be getting a pretty diverse mix of dividend sources and tax treatments from NUSI distributions. But it turns out, they’ve actually been distributing dividends made up almost entirely of return of capital, which has no immediate tax obligations at all. Instead, taxes on these dividends will be deferred until you sell your shares.

#NUSI #DividendIncome #DividendInvesting

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DISCLAIMER: NOT FINANCIAL ADVICE.
The content in this video should not be used as the basis for any investment decision, as it is for entertainment purposes only. Additionally, some of the links contained in this description are affiliate links. I may earn a commission should you choose to purchase or sign up at the links provided.

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