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March 19, 2026 2pm EST

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When my grandparents retired rates were higher and life expectancies were lower. They could put their entire life savings into bonds and just live off the interest. As interest rates declined and life expectancies increased investors needed another answer. Financial planners started coming up with “safe” withdrawal rates which were usually around 4-5%. Now you might wonder why you would pay a financial planner to only get 4-5% growth on your portfolio, but that’s not the idea. The plan in this case is that your portfolio grows by more than you are taking out, this is key. If you have $1M today and you take out $50k a year, you can’t be taking out the same $50k 20 years from now due to inflation. You would hope to maybe have something like $2M in 20 years, so now you are taking about $100k. Here’s the problem, having $1M used to mean you were rich, but the maximum you would be told you could withdraw is $50k, which is pretty hard to live on in most parts of this country. That has led investors to look for ways to generate more income from their portfolio, which also can lead to mistakes….

Mistake 1: Chasing the Shiny Object

Option income ETFs have become extremely popular over the past couple of years, primarily as a potential answer to this income dilemma. Many of them offer “yields” of 50% or more. On the surface that’s pretty enticing, 50% is way more than 5%, but you need to understand where the “yield” comes from. When an ETF pays out a dividend it can be any combination of premiums it gets from selling options, interest on cash, gains on underlying holdings, or return of principal.

As an investor you would hope that most, if not all, of your yield came from premiums, interest, and/or gains. Return of capital isn’t bad, and we’ll talk about that more below, but you would prefer to withdraw money that your money is making. The primary way these ETFs are supposed to generate “yield” is by selling options.

Here’s the way it works very simply. Let’s say you have a stock trading at $100 and you own the stock (could be outright or synthetic). You then sell a $105 call option for $2, if the stock stays below $105 then the fund keeps the $2 and then can rinse and repeat. The fund may do this weekly, monthly, or quarterly and the hope would be that it can keep the premium it generates every time. In practice that’s highly unlikely. Sometimes your stock will expire below the strike price of your options, but other times it probably won’t. Let’s say next month you do the same trade, but this time the stock goes to $115. Now the portfolio manager has to buy that option back, forgetting about option greeks for the moment, let’s say he has to pay $10. So the fund generated $2 from selling the option, but then had to buy it back for $10, for a net cost to the fund of $8 (yes the fund now owns the stock at $115 so in effect it gave up $8 of gains).

Selling options is often referred to picking up pennies in front of a steamroller. You make a little bit month after month until the one month you get crushed. Trying to chase high yields leads to mistake 2…..

Mistake 2: Ignoring Growth

I once gave a talk about investing to a retired men’s group. A guy came up to me afterwards and told me how much he enjoyed the talk, but also said he didn’t need any of the advice. He then went on to tell he his investment strategy. He had all of his money in leveraged closed end income funds, and he was getting a 15% yield. Sounds great, but then he mentioned that his principal had declined by 50%, but it didn’t matter because of the yield. This is of course crazy, and unless he had a ton of money he probably had some serious problems later on. Inflation is not going away, and it’s likely higher than the government wants you to believe. Regardless of what “yield” you are getting, your portfolio needs to grow. That’s one of my biggest complaints about covered call ETFs. When I write a call on a stock or a portfolio I get paid to give up some of my upside. Why would you give up some upside on a stock you think is going to rise? Why would you give up your upside when you need your portfolio to grow (this is why we prefer to write puts instead of calls)? Doesn’t make a lot of sense, and leads to mistake number 3…..

Mistake 3: Not Understanding Return of Capital

To generate high “yields” option based ETFs will often return your own capital. That’s not necessarily bad, as long as they aren’t doing it all the time. Back to my financial planning example of a 5% withdrawal rate, assume your portfolio grows 25% this year, the 5% you take out are your gains. Now let’s assume next year is a downturn and your portfolio declines by 10%. You still need to withdraw 5%, which is now return of your own capital. That’s fine if you only do it once in a while, as long as your portfolio is still growing. If you are returning capital every week or month, eventually you are going to run into problems. This leads to mistake number 4…….

Mistake 4: Not Understanding NAV Erosion

NAV erosion can come from return of capital and/or losses on an underlying portfolio. An ETF that has NAV erosion isn’t necessarily bad, and one that doesn’t isn’t necessarily good. Let’s say you have an option income ETF based on crypto, it would have taken it on the chin the past few months. Whatever income you get from writing options is a drop in the bucket compared to the losses on the underlying securities. You would expect NAV erosion in this example. On the other hand let’s say you have an option income ETF on a stock that has had a parabolic up move. In this case it would be very hard for NAV erosion. Going back to my financial planning example, the key is a “safe” withdrawal rate. Sometimes a fund is investing in securities that are in an upturn, but sometimes those securities are in a downturn. You need to take a long term approach to this, just like a financial planner would.

Putting It All Together

The E, in the H.E.A.T. Formula stands for Edges. We believe one edge is being the casino, not the gambler. To me, selling options is like being the casino. You won’t win all the time, but if you know what you are doing then the odds can be in your favor. I also think that by using options you can generate more than the 5% that financial planners recommend and still see your portfolio grow. In putting this all together, here are a couple of key points to consider:

Just about every index is inching closer to their 200 day moving averages, the NASDAQ Composite breached it on Friday…..

This is an important level as there are many portfolio managers who automatically sell here.

Continue to focus on oil prices and rates. The 10 year is nearing highs for the year….

What this tells you is that traders think we will see inflation, and rate cuts are off the table. These moves are tradeable if you are extremely nimble, if not, stay away. One tweet from Trump or one blown up tanker or oil field can change everything in an instant.

The one key takeaway for most investors is that bonds are not a portfolio hedge.

Today’s stock is Alibaba (BABA)….

The stock had an undercut and rally move at the 10 day moving average on Friday. In this environment, where you see so many names starting to curl down, and move under key support, I much prefer to find names that have already sold off and are curling up.

The H.E.A.T. (Hedge, Edge, Asymmetry and Theme) Formula is designed to empower investors to spot opportunities, think independently, make smarter (often contrarian) moves, and build real wealth.

The views and opinions expressed herein are those of the Chief Executive Officer and Portfolio Manager for Tuttle Capital Management (TCM) and are subject to change without notice. The data and information provided is derived from sources deemed to be reliable but we cannot guarantee its accuracy. Investing in securities is subject to risk including the possible loss of principal. Trade notifications are for informational purposes only. TCM offers fully transparent ETFs and provides trade information for all actively managed ETFs. TCM's statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. Trade notification files are not provided until full trade execution at the end of a trading day. The time stamp of the email is the time of file upload and not necessarily the exact time of the trades. TCM is not a commodity trading advisor and content provided regarding commodity interests is for informational purposes only and should not be construed as a recommendation. Investment recommendations for any securities or product may be made only after a comprehensive suitability review of the investor’s financial situation.© 2026 Tuttle Capital Management, LLC (TCM). TCM is a SEC-Registered Investment Adviser. All rights reserved.