Professionally managed option strategies can help investors pursue income while staying engaged with the market, with potential tax benefits depending on individual circumstances. ETFs are one way to access these strategies.
Head of ETFs and Senior Portfolio Manager, Jonathan Molchan discussed the STF Tactical Growth & Income ETF (TUGN), for example, in his most recent interview on TastyLive. The ETF uses an actively managed call spread strategy designed to support monthly distributions while maintaining upside participation.
IMPORTANT INFORMATION
An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. To obtain a prospectus containing this and other information, please call (800) 955-9988 or visit https://advisor.sheltoncap.com/investment-solutions/exchange-traded-funds/tugn/. Read the prospectus carefully before investing.
Definitions
Options are contracts that give the buyer the right, but not the obligation, to buy or sell an asset at a set price within a specified period.
Option premium is the price paid to buy an option or received for selling one.
A covered call is a strategy in which a fund sells (writes) call options against securities it holds, earning premium in exchange for capping the potential upside on those securities.
A call spread combines buying and selling call options on the same underlying asset at different strike prices, used to generate premium while keeping more upside participation than a standard covered call.
An option is “at the money” when the underlying price equals the strike price and “out of the money” when exercising it would currently have no value.
European options can be exercised only at expiration, not before.
Tactical allocation is an active approach that shifts a portfolio’s exposure between asset classes, such as stocks and bonds, based on market conditions rather than holding fixed weights.
U.S. Treasuries are debt securities issued by the U.S. government. Treasury bills (T-bills) are short-term U.S. Treasury securities.
Exchange Traded Funds (“ETFs”) are subject to the possible loss of principal. The value of the ETFs will fluctuate with the value of the underlying securities. ETF Shares may trade at prices above or below NAV. Liquidity isn’t guaranteed, and trading may be halted due to market-wide or security-specific events, delisting, or exchange actions.
The value of the Fund’s equity holdings may decline, sometimes unpredictably, due to broader economic, political, or market conditions not specific to individual companies. Because the Fund is primarily invested in U.S. stocks, its value will fluctuate with overall market movements and may decline during market downturns, potentially resulting in losses. The Fund’s use of call and put options can limit upside potential and increase costs, particularly if market movements render the options ineffective or result in expired contracts without value.
INVESTMENTS ARE NOT FDIC INSURED OR BANK GUARANTEED AND MAY LOSE VALUE.
Cash Redemption Risk. The Fund’s investment strategy may, at times, require it to redeem shares for cash or to otherwise include cash as part of its redemption proceeds. In that case, the Fund may be required to sell or unwind portfolio investments to obtain the cash needed, which may cause the Fund to recognize a capital gain that it might not have recognized if it had made a redemption in kind. Derivatives (Options) Risk. The Fund invests in options that derive their performance from that of the Nasdaq-100 Index. Derivatives may be more sensitive to changes in market conditions and may amplify risks. Selling and buying options are speculative activities and entail greater than ordinary investment risks. Fixed income Risk. Fixed income investments are subject to changes in governmental policy and market conditions, which may cause such investments to be subject to significant volatility and reduced liquidity, depending on the environment. Fixed Income – Call Risk. During periods of falling interest rates, an issue of a callable bond held by the Fund may call or repay the security before maturity, causing the Fund to reinvest proceeds at a lower interest rate. Fixed Income – Credit Risk. Debt issuers and other counterparties may not honor their obligations or have their debt downgraded by ratings agencies. Fixed Income – Extension Risk. During periods of rising interest rates, certain debt obligations will be paid off more slowly than anticipated, causing the value of those securities to fall. This may result in a decline in the Fund’s income and potential the value of the Fund’s investments. Fixed Income – Interest Rate Risk. Rising interest rates may cause the value of fixed-income securities held by the Fund to decline. Large-Capitalization Investing Risk. The securities or large capitalization companies may be relatively mature compared to smaller companies and therefor subject to slower growth during times of economic expansion. Management Risk. The Fund is actively managed and may not meet its investment objective based on the Adviser’s success or failure in implementing the Fund’s strategy. Models and Data Risk. When models and data prove to be incorrect or incomplete, decisions made based on them can expose the Fund to potential risks. Non-Diversification Risk. Because the Fund is “non-diversified,” it may invest a greater percentage of its assets in securities of a single issuer or fewer issuers than a diversified fund, which may expose the Fund to the risks associated with the developments affecting the issuers in which the Fund invests. Other Investment Company Risk. By investing in another investment company, including ETFs, the Fund becomes a shareholder of that investment company and bears its proportionate share of the fees and expenses of that investment company. In addition, the Fund is also subject to the principal risks of the investment companies in which it invests U.S. Treasury Obligations Risk. Changes to the financial condition or credit rating of the U.S. government may cause the value of the Fund’s U.S. Treasury obligations to decline.
Shelton Capital Management serves as the Fund’s investment adviser.
The STF Tactical Growth and Income ETF is distributed by Foreside Fund Services, LLC.
