From Lake Tahoe, Zephyr market strategist Ryan Nauman hosts Zephyr’s Adjusted for Risk Podcast featuring YieldMax ETFs strategist and CNBC contributor Mike Khouw to discuss the fast-growing trend of using options and other derivatives inside ETFs for drawdown management and enhanced income. Khouw shares his derivatives background, explains YieldMax’s approach to single-stock option income ETFs. They cover the macro backdrop (inflation, labor trends, and a potential new Fed chair), why cash flow matters for many investors, how options overlays tend to perform in different markets, and key advisor considerations and misconceptions around single-stock products, including concentration risk, taxes, and the tradeoff between distributions and price appreciation. Khouw directs listeners to yieldmaxetfs.com for fund details and holdings transparency.

00:00 Welcome and Topic

01:18 Meet Mike Khouw

02:38 YieldMax Strategy Overview

05:26 Cash Flow vs Growth

12:50 Why Options Overlays

16:05 Options ETF Boom Explained

22:42 When Overlays Work Best

30:43 Advisor Due Diligence

33:44 Concentration and Tax Angles

37:19 Portfolio Fit and Examples

43:00 Where to Learn More

43:38 Final Thanks and Subscribe

Connect with Ryan Nauman:

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Let's go.

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Ryan Nauman Market Strategist Zephyr:

Hello everyone and welcome to

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zephyr's adjusted for Risk Podcast

from the shores of Lake Tahoe.

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I am Ryan Nauman, the market

strategist here at Zephyr.

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One of the hottest trends in the ETF

space has been the inclusion of options in

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other derivatives within the ETF wrapper.

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While some.

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strategies focus on protecting

against drawdown risk.

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Others focus on producing enhanced income.

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I have on an industry expert who

is going to help us understand

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what these new products mean for

financial advisors and investors.

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But first, today's episode is sponsored

by the award winning Zephyr, which

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helps investment professionals

make more informed investment

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decisions behalf of their clients.

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Alright.

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Enough from me.

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I have already talked enough.

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Let's go ahead and move on

to the star of the show.

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My next guest.

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He doesn't need much of an

introduction, but here it is.

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Anyway, I'd like to give a

very warm welcome to Mike Co.

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Mike is the strategist at Yield Max

ETFs in A-C-N-B-C contributor, Mike.

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you so much for coming on the show.

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It's an honor to have you on one.

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A conversation I'm looking

forward to for some time.

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Can you please tell us a little bit

more about yourself and yield Max ETFs?

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Mike Khouw Strategist YieldMax ETFs:

Sure.

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Yeah, so first of all, thank

you very much for having me.

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I really appreciate the opportunity.

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I've spent most of my career.

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In derivatives.

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Trading, I started as a floor

based options specialist and market

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maker on the Philadelphia Stock

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Since that time, I've focused a lot

of my career on structuring and also

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on educating investors, actually

even educating some of the traders.

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I was part of the training program

at one of the trading firms

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that I worked at called Bluefin

Trading, which still exists.

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As you point out I've been a contributor

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concept of a show called Options Action

which was the first sort of linear

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business television show about options

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And they also had hits that would

go on during things like fast money.

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And so I've been doing

that since that time.

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And more recently I joined

Yield Max as a strategist.

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And at Yield Max we focus on single

stock option income ETF products.

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So essentially what we're doing

is giving people democratized.

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Strategy in a stock, if you will, where

we own proxies for the underlying stocks

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and then sell call spreads against it

to generate some options, a premium.

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And then we also run a

number of funds as well.

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We have one that focuses on the top 50

largest companies in the s and p called

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Biggie, appropriately named, which

sells some options premium against the

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basically 80% of the s and p, if you will.

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We have one that we recently

launched called Quad D, which.

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Seeks to essentially double the dividend

of the Dow Jones Dividend Index.

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So that yields about three, three and

a half percent in stock dividends.

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And then we try to create an options

overlay that will, on a net basis,

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add another three to 4% net to that.

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So hopefully getting into the

neighborhood of 7% total yield.

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On that between the dividends

and the options income.

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So a broad swath, we have

over 60 funds overall.

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Ryan: That's fantastic, Mike.

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Couple things there.

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is financial literacy month, so

I love that you brought up the

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education piece to list some options.

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I'm not gonna lie, Mike, I'm a

little, whenever anyone talks about

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single stock option overlays or

products, I get a little hesitant,

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a little bit worried about those

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Mike: Oh.

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Ryan: out there or individual clients.

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I might get into these that aren't

fully aware of what they are and

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some of the risks such as maybe a

nav erosion and stuff like that.

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So we're gonna talk a lot about

that since one of the reasons why

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I'm really excited to have you on.

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Before we get started though,

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Faster holding up.

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Mike: It's going pretty well.

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I think.

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I'm the number two ranked analyst on

CNBC at the moment for the year to date.

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Total returns of about, it was just

shy of 10% after the first quarter.

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So up 9.8%

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I think was the number that I saw.

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In terms of total returns year to

date might be actually a little bit

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higher because the person who did that

calculation, I didn't calculate it myself.

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I don't know that they do an appropriate

total return calculation, and that's

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important for the conversation of

anything that generates incomes,

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because you need to make sure

you get the dividends in there.

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But yeah, so I think I was number two

out of all of those that gave acronyms.

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I didn't win it last year, but

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Ryan: I love it.

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We've got a long way.

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It's crazy.

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It's April, but we still got a long

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Interesting

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Mike: way.

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Ryan: Love it.

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Love it.

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Investors, they're faced

with so much uncertainty.

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Right now we have geopolitical risk,

monetary uncertainty with, a new fed

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chair person coming in here soon.

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Cracks in the labor and market.

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What's your take on the

current macro backdrop?

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Are we still not outta the woods?

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Are there more things

to be concerned about?

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Mike: It's genuinely

a complex environment.

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When, isn't it though, I guess is,

the thing I could say just bringing

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up Kevin Walsh, who you mentioned.

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The new Fed chairperson.

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He hasn't been confirmed yet, but I

expect that he probably will be it's

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a person I have a lot of respect for.

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He is an individual who historically has

expressed some concern about excessively

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dovish monetary policy, and I think that

if we look at the biggest missteps that

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the Fed has taken in my professional life.

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That certainly took place, in

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Probably actually a little bit I,

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a bit, but I think it's pretty clear

that both treasury and the Fed did

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not fully recognize the inflationary

risks that the economy was facing, and

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they did not respond quickly enough.

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I'm not saying anything controversial.

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I think by saying that, considering

that in that period we saw the highest

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inflation that the nation has seen in 40

years and Kevin Walsh has been critical

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of excessively easy monetary policy.

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And, some of the quantitative easing that

went on, and I think that speaks well to,

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the idea that he will be a steady hand.

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On the tiller, but what are the other

things that we, as investors ought to be

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taking a look at and what really matters?

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Obviously we care about the

other health of the economy,

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which is the economy growing?

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So inflation is one part of it if

we think about the Fed's mandate.

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The other is labor.

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There's a little bit of concern,

I think it would be fair to

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say we, we have seen since.

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There was a big peak in job

creation that took place.

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After we came outta the pandemic,

the economy began to get restarted.

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There was massive job creation,

of course, because there was a

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large bit of unemployment that

resulted from the pandemic.

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The pace of job growth has

slowed very steadily since

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it peaked in also about 2021.

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And some of the revisions

have not been positive.

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In recent months.

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So I think that's a little bit of a

concern, but I think ours is a fairly

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resilient economy, and I think that's

the thing that people need to focus on.

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If there is any economy in the

world that is resilient, it's ours.

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In fact, I would argue that as long as

we don't mismanage it the United States

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is still the best economy in the world.

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And that's not to say that there

aren't others that haven't been

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growing faster or have seen.

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More accelerated growth like China.

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But China has systemic

problems all its own.

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It also has a demographic cliff and

it still has a big lending problem to

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deal with in their real estate market.

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If I think about an economy that can and

should be healthy, assuming we don't get

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into too many other sort of geopolitical

risks around the world, and obviously

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we're dealing with one in the Middle

East right now, but if we can get to

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the far side of that I feel pretty good.

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Ryan: Yeah.

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Fantastic.

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Mike and I completely agree, and

as long as, the consumers and the

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US consumers, they like to spend so

long as they continue spending, I

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think I think we'll be okay there.

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So with that backdrop

that you just mentioned.

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Is it time for financial advisors and

then investors to focus more on cash

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flow rather than price appreciation?

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, Like you said, the economy's been

resilient, but so too has markets, they've

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been resilient over the years and even

when times we think market might pull

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back some, it just on ripping higher.

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So why should investors focus on cash

flow now versus continue just to ride the

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wave and enjoy the price appreciation.

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Mike: I think it's always important

for people to think about cash flow.

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I'm not sure that they always

do, but I think it matters, and

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I like to think about cash flows

in two different ways as an.

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Investor one.

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I'm very interested in whether

the companies themselves are

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generating free cash flow and

if they are, how they deploy it.

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I think that's an important consideration.

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And some of the biggest companies

in the world and in the United

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States have been generating

massive amounts of free cash flow.

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So investors who held them, whether

you held Nvidia, for example

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or alphabet meta, Microsoft.

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You could say, if I'm a young investor and

I'm thinking about the future, and I don't

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need to use that cash flow now, then is

it all right to invest in companies that

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pay a very low dividend or no dividend?

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If they're growing quickly, if they're

growing faster than the economy,

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if their EPS is growing faster than

their top line, and if their free

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cash flow is growing faster as well.

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I think that's fine for those investors

who only need capital appreciation because

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they're not relying on their assets to

provide some measure of income for them.

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There's another reason, and that

is that generally fa higher growth

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companies what we sometimes call

long duration equity, they're also

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gonna tend to be more volatile.

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That might also matter less to younger

investors than it does to older ones.

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But there certainly are a lot of

investors who don't like it when

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their assets are highly volatile.

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There are a lot of investors who are,

one of the reasons that they invested

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was so that their investments could

provide them with an income at some point.

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And the other thing is that income

producing assets or assets that throw off

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distributions are inherently lower risk.

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And to understand that intuitively, just

imagine if you were a bond investor.

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And I said, okay, you can invest in

a bond that's a 20 year zero coupon.

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So you put your money in and

hope you get your money and

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some interest back at the end.

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Or one that pays, biannual coupons, right?

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So the one that's paying biannual coupons

because you're taking cash out of it

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all the time is gonna be, lower risk.

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And I think it's one of the reasons why.

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You're not gonna find a whole lot of banks

that have a zero coupon car loan, for

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example, where you go in to the dealership

today and you buy a car and five years

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from now you owe them all of the principal

back, plus any accumulated interest.

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That, that would certainly be a

riskier car loan to make than one

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where they say, actually we'd like

you to start making monthly payments.

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Ryan: I'm really glad you brought

that up about some investors.

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They, you don't want capital

appreciation, price appreciation.

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The market's a lot different

than, our grandparents market

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and now a lot of growth names

are producing dividends, apple.

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So now some of these investors, they

can get the best of both worlds in

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a sense, at invest in some of these

growth names, but they're also producing

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some, somewhat attractive income

based on the capital appreciation.

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Do you think there's other ways or

other sources that might be suited

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or better suited for equity income

during this market environment or

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macro environment in addition to

just your basic dividend yield?

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Mike: Of course I'm gonna be

talking my own book at this point.

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When I say that I think options overlays

would be a, an intriguing additional

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source of potential distributions

against an equity portfolio.

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You mentioned Apple and it's true.

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Here's a company that you know, one

of the greatest companies of all time,

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and indeed they do pay a dividend.

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But here's the problem.

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And that is that their annualized dividend

yield is only about 40 basis points.

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And if you take a look, I'll look

it up right now, using my handy

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dandy Bloomberg terminal here.

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If you're looking at the s and p in

general, the, the implied dividend yield

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right now for one year is about 1%.

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That means you're gonna be getting

about $10,600 per million in income.

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That's not a whole lot right now.

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If you look at something like the Dow

Jones Dividend Index, then you're gonna

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be dealing with all dividend paying stocks

as the name would imply, and so that

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yield is going to be higher in that case.

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The yield as we speak

right now is about 3.35%.

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So you'd be getting about $33,500 for

every million dollars you invested.

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But if if you have monthly expenses

that are in the, say a hundred thousand

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dollars a year range then you're gonna

need to have $3 million invested to

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satisfy that cash flow requirement.

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Or the alternative would be that you

can put some of your money into bonds

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or some other kind of fixed income

and not have some equity exposure.

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Bonds over the long run don't

have a terrific track record in

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terms of total returns because

money gets devalued by inflation.

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So it's nice to have an underpinning

basket of equities and that's why

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we have strategies like Quad D.

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So in Quad D'S case, what you're

doing is you're trying to get

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the Dow Jones Industrial dividend

index constituent stocks.

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Capturing their 3.35%

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dividend yield and then putting in options

overlay on top of it by selling some call

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spreads against those stocks that seeks to

about double the dividend on a net basis.

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So the objective there would be,

hopefully that you're gonna get nearly 7%.

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So double 3.35

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would be 6.7%

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is what our target distribution

rate on an annual basis.

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And then you still own

the underpinning stock.

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So you own those stocks,

you collect those dividends.

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It for some investors though, will,

those will be viewed as qualified

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dividends and then sell some options

strategies around that to, generate

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a little bit of extra premium.

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Ryan: Yeah, that's great Mike.

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And you're exactly right in terms,

let's talk about option overlay

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strategies here for a second.

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They're very popular.

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One of the hottest trends in the ETFs.

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Based and rightfully they can

really, a big fan of democratization

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of investment strategies.

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For years, options were, for the

ultra high net worth institutions.

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Now, like Yield Max's products, they're

bringing it to retail investors.

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Is that trend, this hot trend

in option overlay strategies?

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Is it being driven by investors, financial

advisors, or is it just asset managers

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trying to enhance their product lineups?

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Mike: I think it is a

combination of things.

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First of all, options.

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Relative to the length and time

of the stock market in the United

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States at least, are relatively new.

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I think what a lot of people

don't know is that options have

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been around for a very long time.

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In fact, one could argue that the first

options trades ever done were done

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in ancient Greece by Theus of Miletus

on all oppresses back around 600 bc.

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But in the United States.

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Our first stock exchange was the

Philadelphia Stock Exchange, which was

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founded in the late 17 hundreds, and

we didn't have exchange traded options

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in the United States until 1973, and

that was only on a handful of stocks.

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There were call options only they

listed puts three, four years later.

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But they still were.

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It was not a really popular product.

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Now since I got into the business

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annual growth rate of options

volume has been significantly

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higher than it has been for stock.

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So I think the fact that

we've seen a big increase in

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self-directed brokerage platforms.

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And also the internet itself has

allowed people to educate themselves.

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Every investor who's an auto

didact, who wants to learn about

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things now has the opportunity.

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You do not have to go and

buy a book about options.

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I did write one.

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People are welcome to go and buy that.

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There are a lot of other good ones too.

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Sheldon Berg's Options, volatility

and Pricing is probably one of the

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best known amongst Options traders.

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McMillan, there's a lot of

good books on the subject, but

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you don't need one anymore.

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Because information about options

is so readily available and people

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can educate themselves about it.

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So that's an important driver.

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Right there.

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Just that options, volumes have taken off.

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People are more aware of them

and understand their risks

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and benefits much better.

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So that's one part of it.

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There's another part which is that

ETFs themselves have taken off.

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ETFs are generally speaking, a more

cost effective and tax efficient

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wrapper for a fund than some other

more traditional approaches have been.

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And also because they've been coming

out so fast and furious, there's

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just a much wider array of potential

strategies that are in there.

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So that played into it as well.

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There have been changes in the

rules and the interpretation.

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There was some.

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Rules as it doesn't really matter what

they were, they'll just tell people.

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18 F dash four was a rule

interpretation and clarification that

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took place a couple of years ago.

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And what it really did was better

laid out the ground rules for

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exchange traded products that

use options in their strategy.

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And so that allowed

once there was greater.

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Clarification on what can and can't

be done, then it allowed for a lot

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of these products to come out and

created a lot of innovation, I think.

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And so when you put all of those things

together and then also combine that

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with, we have an aging population, a lot

of them have a lot of money invested in

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the markets, and more of those people

are going to get to a point in their

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lives where they are, depending on.

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Taking money from their investments rather

than continuing to contribute to their

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investments as they transition from being

in the working world to, retirement.

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And I think you put all of those

things together and that's one of the

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reasons why you're seeing such a huge

growth in these types of products.

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The other thing I would say is as big as

these things have become, and they have

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become big as a percentage of the overall

exchange traded product market globally.

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There's still a relatively small

percentage, big as they are, and

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there are options based ETFs out

there that have, individual funds

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that have 80, $90 billion in them.

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So you could have a

trillion dollars in this.

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And then you look at the size and

scale of the market overall and

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realize could it get a lot bigger?

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It can, and it.

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Ryan: Yeah, that's a great point.

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I'm glad you brought the,

kind the history of options.

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I'm going to age myself here, Mike.

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I do that a lot on this show.

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When I was kid in high school, my dad,

dabbled in investing and stuff like that.

350

He had mentioned that he an a call

on I think at the time it was Amgen

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and how well it did and stuff.

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And at the time it was like options.

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He was trying to explain it to

me and I was like, oh my gosh, we

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didn't have the internet back then.

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So it was like, how, what is an option?

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And now it's just gone mainstream.

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Especially like during COVID.

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I remember COVID, just all the reports

of all the options, the volume of

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options just spiking during COVID and

it really hasn't slowed down it seems

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and because like you said, the ETFs

now are making it more accessible, so

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Mike: Yeah, I think we, I think

yield max trades more options than

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the entire options market did when

I first started in this business.

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Ryan: Wow.

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That's

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Mike: That's, I realize that sounds

probably incredible, but that seems

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about right because there have been weeks

when we have traded eight or 9 million

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options contracts and that would probably

have been more than a lot of weeks than

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the entire options market would do in

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is, I'm looking right now on, yeah.

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So right now.

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We're averaging close to

60 million contracts a day.

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And to put things in perspective,

for those that don't know much about

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options, an options contract usually

represents about a hundred shares.

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There can be reasons for corporate

actions and things like that, that's

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not the case in in some circumstances.

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But most stock options

represent a hundred shares.

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So 60 million contracts a day.

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That's gonna work out to 6 billion

in round numbers approximately.

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That's, you think about that as

options on 6 billion shares a day.

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That's a lot of activity.

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Ryan: That is a lot of activity and it's

just amazing how just the markets have

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evolved over time and it just, how quick.

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They move and we talked about it earlier.

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It's a fascinating watch.

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One of the reasons why I love this

industry is you would just wake

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up every day and you have no idea

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It's evolved.

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Are there certain market environments

we talked about, equity markets

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have been very resilient.

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Also, macro, the macro dynamics that

you mentioned earlier, there are

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certain environments where option

overlay strategies perform better in.

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Mike: Yeah, one thing I often like

to say to people is that of course

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some market environments are better.

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For different stocks, for

different strategies, then other

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environments are on a relative basis.

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And the reason is that, oftentimes

what you're doing is, squeezing the

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risk return balloon, if you will.

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So I can grab more from one

part but usually there's some

399

other kind of a trade off.

400

I guess the best way to think about it

this way is that these strategies will.

401

Tend to shine in, three

basic environments.

402

So flat or sideways markets where

you're not getting a whole lot

403

out of, and not giving up much

in terms of price appreciation.

404

That's a place where you're gonna

see, real out performance because

405

you're gonna be collecting options,

premiums, but you're not really

406

giving up anything in exchange for it.

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On a relative basis, that's going to be.

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More outperformance relative to,

just straight, long equities, and

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that should make sense to you, right?

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So if I buy a stock, I pay a hundred

dollars a share, and I sell an

411

upside call option against it at,

say the 1 0 5 strike for two bucks

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and the stock does nothing well.

413

After the end of the period, I collected

my two bucks and I do it again.

414

And so I will have outperformed the

stock by two bucks for that period.

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And as many times as I do that,

I will outperform the stock

416

cumulatively by more and more.

417

But I think the important thing for

investors to remember is that if this

418

is my strategy, I still own the stock.

419

Don't I want the stock to go up?

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And the answer is yes.

421

So I would say to people that,

the ideal circumstance for.

422

Funds that own stocks or proxies for

stocks and sell some upside premium

423

against them is that the market's just

marching steadily higher and you're

424

getting some capital appreciation out

of your stocks and you're generating

425

some premium from your options overlay.

426

That's the sweet spot for the strategy.

427

It, I've heard people say,

oh, the upside is capped.

428

We sell call spreads, which

means we are short one call

429

and long another, so we're not.

430

You're not capping your

upside, but it will be reduced.

431

That's the balloon squeezing

effect that I'm talking about.

432

But we are still in the long strategies.

433

We have some short ones too.

434

You are rooting for the

underlying stocks to go higher.

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One other thing I would just

point out, and that is that, as

436

time passes, how much people are

willing to pay for options varies.

437

When things are more volatile,

they'll pay more for options.

438

And sometimes what that can mean is that.

439

Depending on how much the market moves

around the relative premium, you're

440

getting the volatility risk premium.

441

That's essentially the excess

return you expect to collect

442

by selling options goes higher.

443

I was just talking about this earlier

today because with all of the tumult

444

that's going on in the Middle East right

now one of the questions that came up was.

445

What, how does realized volatility

compare to implied volatility?

446

The price of options compare to how

much the market's moving around.

447

And, I looked back and I saw that about

30 days before, we're talking today,

448

the implied volatility looking forward

in the s and p 500 was about 22.5%.

449

Why was that?

450

Things ha in the Middle East had

just recently conflated, right?

451

We'd had strikes on Iran.

452

People got very concerned.

453

Oil prices shot up, the market

rolled over a bit, and the more

454

anxious people get, the more they

are willing to pay for options.

455

And so options, premiums

were much, much higher.

456

And now we've had a month since

all of this stuff, even more to

457

look back and say how much did

the market actually move around?

458

And the market was expecting 22.5%

459

implied volatility.

460

That means an annualized standard

deviation of about 22.5%,

461

and the market realized about 18%.

462

So that means that options, if we

look at that 30 day window, one month

463

window, thereabouts, were overpriced

by about four or four and a half

464

clicks of all which is, about 20%.

465

So it's been a good time to be.

466

An option seller, and that's

not always gonna be the case.

467

Sometimes you get really big

exogenous shocks and sometimes

468

you just wish you weren't in the

market at all when that happens.

469

But, and we don't have a crystal ball.

470

We can't see that coming, but it's in

this way that, sometimes you can benefit,

471

but from uncertainty a little bit.

472

Ryan: I, when it's done correctly,

uncertainty, volatility can

473

be an investor's front, They

474

Mike: Exactly.

475

Ryan: of it.

476

So I'm gl really glad you

brought up both sideways markets.

477

PE ratio, vol valuations been very high.

478

So based on that, a lot of people, a lot

of talking analysts predict that, you know

479

what, for the next couple years, maybe

markets are gonna be a little bit flat.

480

There's not gonna be 10, 20%

returns that we've seen recently.

481

So with the valuations high and

past, research that, we could have a

482

sideways market or we're not gonna see

double digit returns moving forward.

483

So maybe a good environment here

for some of these option strategies.

484

Mike: Yeah I don't know which work you're

thinking of when you cite those numbers.

485

JP Morgan put out a, an

interesting piece recently and I

486

encourage people to look for it.

487

It's a scatter diagram basically,

and what it does is it shows the

488

price to earnings of the s and p.

489

Plotted against the forward

returns over the subsequent decade.

490

And as you would expect, the

higher the valuation that you pay

491

for an investment, the lower it's

expected returns are over time.

492

Which is exactly what you would expect.

493

You can imagine that if I have an

investment where I think it's gonna

494

make 5% a year but then instead of.

495

Buying it when it implies 5%, I buy it

when it implies four, that my expected

496

returns are gonna be somewhat less, right?

497

So if you pay more for the

future earnings, then your return

498

would necessarily be lower.

499

The another way to think about this

is that if you take a look at the

500

returns over the last century or

so, for as close a proxy to the

501

s and p 500 is we can create, the

long term average annual return.

502

Is in the mid-high single digits.

503

Now, we've been getting much, much

better than that over the course

504

of the last couple of years.

505

But realistically, can we expect that rate

of constant price appreciation to persist

506

from, one year to the next indefinitely?

507

Some mean reversion is to be expected.

508

The US economy grows probably

what, three and a half, 4% per year

509

revenues in the s and p probably

grow at six, six and a half percent.

510

And the compound annual growth rate

for adjusted EPS on the s and p has

511

probably been close to 8% of late.

512

At some point, it would be

realistic to assume that your

513

annual returns would appreciate.

514

Possibly with the, with, the

average rate of adjusted EPS growth.

515

That would make sense.

516

And if that's true, then 20% a

year is probably unrealistic.

517

And if you are looking to get something

better than the rates of return,

518

that a mean reversion would imply.

519

It probably makes some sense to, to

spread your chips around a little

520

bit and look for some investments

that pay some distributions as well.

521

Ryan: Yeah.

522

Yeah, that's a great point, Mike.

523

Let's go back.

524

I mentioned at the beginning, I'm a

little bit hesitant about some of these

525

single stock option overlay strategies.

526

talk about that for a second.

527

What should financial advisors consider?

528

Maybe they're like me, where they're

a little bit hesitant, incorporating

529

them into their client portfolios.

530

I often talk a lot about MA alignment,

making sure these products align

531

with their client's objectives.

532

What should financial advisors

consider when thinking about.

533

Incorporating these single

stock option overlay strategies.

534

Mike: So the single stock options

overlay strategies are basically intended

535

to be a replacement for affecting an

options overlay on that stock yourself.

536

So essentially I'm going to allow

people who trade millions of contracts

537

every week to do my, covered call

spread strategy on Nvidia, for example.

538

So if you don't wanna manage that strategy

yourself, and there's a lot to ma manage

539

because you have to adjust the strikes

and roll those positions at least once

540

a week if you're using weekly options.

541

If it's a call spread, that's two options.

542

And it's a whole lot easier of

course for a lot of people to say,

543

you know what, I'm just gonna buy

Nvidia rather than buy Nvidia and

544

manage that options process myself.

545

So that's really who that's intended for.

546

You already know that you want that

stock and you already know that you

547

wanna run an option strategy on it.

548

So that's really who the single

stock strategies are for.

549

One of the things that I sometimes see

and have heard people say is they will

550

just comb the universe and say, oh, this

one looks like it has a big distribution.

551

I'm gonna buy that.

552

Looking at a single stock options

income strategy product, and thinking

553

of it kind of the way you might have

historically thought about a mutual

554

fund, that's not what these are.

555

These are strategies on stocks that you

can deploy, essentially democratizing

556

a strategy that logistically would be

too difficult to affect for yourself.

557

So if you have that stock and you

know you wanna run an options income

558

overlay strategy against it, the ETF

might be a better solution for you

559

in terms of much e, lower complexity.

560

Perhaps there might even end up being

some tax efficiency in it for you.

561

And it trades with the

convenience of a stock.

562

So that's really who those are for.

563

We also have diversified portfolios

though, so if you just want to do

564

semiconductors, then you would do

something like a chippy or a soi.

565

If you were looking for the,

large cap equities, then it

566

would be something like biggie.

567

And that's more of an

investment in the strategy.

568

Pre diversified, whereas the single

stock strategies are basically, I like

569

that stock and I wanna run an options

income overlay strategy against it, and

570

I'm gonna let these guys do it for me.

571

Ryan: Yeah, that's great.

572

And a lot of, especially on the tech

side, these tech companies, a other

573

employees might have a overweight in their

firm's employee stock option plan that

574

I'm assuming these single stock option

strategies can help hedge against that.

575

There's some other strategies.

576

There that can diversify that portfolio,

maybe hedge against that single stock

577

risk of having a portion of your

portfolio in your company's stock.

578

Mike: Yeah, it's funny that you should

mention that I have spoken to people who

579

have heavily concentrated core equity

positions that want to use options,

580

overlays specifically for that reason.

581

I've spoken to people who have worked

for and have retired from, and then

582

that's an important point I would make

because if you're a current employee.

583

And you're receiving RSUs

restricted stock units.

584

You may or may not be permitted to, to

trade options overlays, but I have spoken

585

to people who, for example, worked at

Nvidia retired several years ago, held

586

on to some of their stock, never realized

what that stock was going to do and have

587

generated seriously generational wealth.

588

I've directly spoken to people who.

589

Have made hundreds of millions of

dollars in that company just that one.

590

And now are aggressively looking

at options overlay strategies.

591

'cause they're interested

really in two things.

592

One, they want to generate some income

and Nvidia doesn't pay a big dividend.

593

So they, they can't just hold the

shares and wait for a quarterly

594

dividend to support their lives.

595

And in many cases.

596

As their net worth swelled

because these stocks appreciated

597

so too did their lifestyle.

598

So people who once upon a time might've

lived on $300,000 a year now live on, I'm

599

not kidding, $300,000 a month, let's say.

600

And they can sell off shares of the stock

to do that, but oftentimes that's not

601

what they want to do because it has a tax

consequence if they sell their shares.

602

And secondly.

603

This is a refrain I hear all the time.

604

They say, every single time I thought

I, I should sell some stock and didn't.

605

I'm so glad I did not.

606

So they've actually gotten

to the point where they don't

607

know what the stock's gonna do.

608

They're afraid to sell it because

they don't want the tax consequence.

609

And also, by the way, Invidia

being based in California, if

610

you're a California resident, you

are a Cal California resident.

611

I think.

612

You might be on the, in, in Nevada side.

613

I am in California.

614

The tax laws are not particularly.

615

Friendly if you are selling appreciated

stock because they don't have a

616

concept of long-term capital gain.

617

So it's not tax advice.

618

I'm not a tax lawyer or an

accountant seek your own tax advice.

619

But I will tell you that I do know

a lot of people who have appreciated

620

stock holdings that are using options

overlay strategies to generate

621

distributions off of their core

holdings without selling those holdings.

622

And in some cases also to

hedge them a little bit.

623

If you sell premium against an equity

portfolio, you're effectively reducing

624

your basis through the course of time.

625

Is that a complete hedge?

626

No.

627

Does it mute the downside of it?

628

Yes.

629

Ryan: Yeah, Mike, that's great.

630

I love that example

too, because especially.

631

with concentration risk, I'm sure a lot of

portfolios out there are, heavily weighted

632

to whether it's the MEG seven or the

mega tech, or in your case, like we were

633

talking about, just the individual stock.

634

So great insight there.

635

Lastly.

636

Financial advisors go back to them.

637

What do you tell them?

638

And people like me, what do you tell

them when they think these strategies,

639

particularly the single stock

option, they're just too complicated,

640

too risky, implied volatility.

641

Just another thing they

need to think about.

642

They have nav erosion they heard

about, it's I don't wanna touch these.

643

What do you tell those

financial advisors about these?

644

That maybe there's some

misconceptions out there to get

645

over 'em and that you know what?

646

They are good strategies for a portfolio.

647

Mike: Yeah, I guess I would

say a couple different things.

648

First of all number one, if you're

looking at options, income strategies in

649

general, and you're not a stock picker,

and look, some, a lot of investment

650

advisors are also not stock pickers.

651

They may be picking stocks or

they may have stocks selected by

652

their clients who say, I want to

own this, I heard a great thing.

653

I don't know whether they heard it at

the barber shop or they heard it from

654

their best friend, or, they've been

reading the paper and they have an idea

655

that they want to be in a certain stock.

656

Sometimes individuals have their own ideas

and sometimes they're right to have those

657

ideas, and if they have selected a stock.

658

And they would like to run an options

income strategy, then the single stock

659

strategies might be an appropriate case.

660

If an advisor has a strong conviction in

a given underlying stock and is tracking

661

options, prices and says, I like the

stock technically right here, it feels

662

like it's probably gonna be range bound,

but the options premiums are high.

663

I think we want to run an options overlay

strategy against the stock, but I'm

664

not going to, I'm talking to clients.

665

I am doing a lot of other things.

666

I can buy a strategy like this and

I'm gonna allow people who do a lot

667

of options trading to manage that

for me, I think that's a great case.

668

I think also it's not a bad idea for

people though to have allocations to

669

the more diversified products, the

ones that run a diversified strategy

670

and have an options overlay strategy

against that to generate some income.

671

The example I would provide.

672

And I think this is illustrative is that,

as I previously pointed out something

673

like our large cap 50, so I'm just, I'm

going to u use my Bloomberg terminal now.

674

I'm just gonna compare what it did

versus the s and p, which, is essentially

675

gonna behave a lot like it last year.

676

So looking from December 31st,

677

Okay.

678

And if you look at that so

the s and p saw a 16.35%

679

price appreciation from December from

680

24 to the last trading day of 2025.

681

So if you brought spy, let's say that's

probably the biggest proxy, everybody

682

knows that you'd have seen 16.35%

683

price appreciation, and your total

returns would've been higher.

684

You would've gotten 17.72%.

685

What's the difference?

686

Remember what I said.

687

The s and p is giving you a

dividend yield of about 1%.

688

Now, it was slightly higher

last year, a little over 1%.

689

So the difference, 1.4

690

ish percent was the dividends.

691

So you bought stock, they went

up 16%, and then you got a

692

little over 1% in dividends.

693

And that's a great outcome, right?

694

But for some people, that dividend

distribution wasn't sufficient.

695

Biggie nearly tracked.

696

Step for step how the s and p

behaved, because 80% of it is

697

the exact same underlying stocks.

698

So you're gonna have those stocks,

you're gonna get those dividends,

699

but then additionally, you're

selling some options premium.

700

So biggie's price appreciation

701

Now remember what I said for spy 16.3,

702

16.4.

703

Biggie appreciated 4.5%,

704

but your total returns were over 19%.

705

And that's because it's been paying

out distribution all of this time.

706

And that distribution was more

than 14% of your initial investment

707

throughout the course of the year.

708

And I think that's really the point

that I would make for people is

709

that you can choose a strategy that

will behave more like the underlying

710

stocks or almost exactly like them.

711

Quad D will behave a lot like the stocks

and get a little bit of options income,

712

or you can get something that behaves

where your total returns are similar

713

to stocks, but your price appreciation

isn't gonna be as much, but you're gonna

714

get regular distributions like Biggie.

715

Or you can just say, I love Nvidia.

716

I wanna run in options

income strategy on that.

717

So I'm gonna pick something like

NVD and that's gonna be mostly about

718

getting distributions, but your nav

is, that's the trade off you're making.

719

How much appreciation do you want?

720

Versus how much distributions do you want?

721

The more distributions you want,

the underlying asset's gonna

722

have to really perform well.

723

For to see considerable

price appreciation.

724

And we did see that in, in

semis last year, but that's

725

not gonna happen every year.

726

There's, I've never seen a sector

that goes up 50, 60% year after year.

727

Ryan: I wish there was Mike.

728

I wish

729

Mike: Oh yeah.

730

Wouldn't that be great?

731

Ryan: it would be fantastic.

732

Mike, I knew it was gonna be a

really fun conversation and it was.

733

Thank you for bringing

so much great insight.

734

Really.

735

It's been an honor on

a very important topic.

736

Like you said, demographics, people are

aging, income is more important than

737

ever now in such a great topic that,

another strategy that can help investors.

738

During their retirement age.

739

It was such a fun conversation.

740

Thank you, Mike.

741

Where can our audience get more

information about yield Max ETFs?

742

Mike: The best place to go for

sure would be yield max etfs.com.

743

We have all the information

about all the respective funds.

744

All the tax information is there.

745

You can actually go and see the

holdings of every single fund.

746

They're updated every night.

747

There you can see the transac.

748

That took place, and that's a

really great place to get started.

749

Ryan: Unlike what some people may

believe, I do some research here.

750

Mike and I did check out yield Max.

751

You guys do have a lot of great

insight and I love the transparency.

752

So important.

753

I love the transparency on the website.

754

So thank you and thank you so much

for listening to this episode of

755

Zephyr Adjusted for Risk podcast.

756

You can watch all of our other episodes

on the Zephyr YouTube channel, all the

757

other platforms that you may listen to

your favorite podcasts on, and please

758

be sure to like and subscribe to those

channels and give us a follow on LinkedIn.

759

Thank you very much and have

a great rest of your week.