Chasing Options Income Risks ‘Grave Error,’ Former AQR Quant Warns
- Study shows a call-selling strategy has lost money since 1999
- Paper highlights risk of funds using derivatives to add yield
Managers pick a portfolio of stocks, then sell options against them, sending the proceeds to shareholders.
Photographer: Daniel Acker/BloombergThis article is for subscribers only.
A big story of investing in 2023 has been the craze for exchange-traded funds that marry equity exposure to streams of income wrung from the options market. More than $20 billion has flowed to them — mostly from retail traders — in the never-ending search for yield.
Alas, the latest research suggests buying the funds for the express purpose of pocketing the extra money is a mistake, with gains eaten up by losses connected to the very options that traders were counting on to buttress returns.