What’s Behind Tuttle Capital’s 21 New Option Income ETFs

A newcomer to the income ETF market is offering products with a taste of everything ranging from crypto to single stocks to thematics.

And that’s not all, said CEO Matthew Tuttle, whose firm is behind 21 new ETFs in registration. The funds would differ substantially from the popular option income products currently available that use covered calls for their income components. Instead, the new products would use put spreads and would not have caps on their upsides, Tuttle said.“I’m trading options all day every day for my personal account,” he said. “I don’t like covered calls. I don’t like them because you’re sacrificing your upside. And when you put them on a volatile [stock] name, you’re not really protecting much on the downside.”

Options Abound

The forthcoming Tuttle Capital Management funds would boost the number of derivative income ETFs on the market by more than 10%. Among 170 such ETFs operating today, there are more than $141 billion in assets, though about half of that is in just two popular products: the JPMorgan Equity Premium Income ETF (JEPI) and JPMorgan Nasdaq Equity Premium Income ETF (JEPQ), data from Morningstar Direct show. The category took off in 2020 and 2022, when some investors showed a preference for the high-yielding income strategies in volatile markets. 

“People were expecting that when the market became less volatile … investor interest would dry up — but that’s been bucking the trend,” said Lan Anh Tran, analyst on the passive strategies team at Morningstar. “It’s a very high yield that they are able to pay out, and I think that is pushing a lot of people into the space.”

Sales have only gone up, data from Morningstar Direct show:

• Derivative income ETFs brought in a total of $21 billion in 2022, nearly $28 billion in 2023 and over $35 billion in 2024.
• This year through July, net sales are higher than ever, at about $35.5 billion.

New Toys: It all started with a focus on index-based ETFs, though the category has recently veered into single-stock focused products, she said. For example, one of the biggest derivative income ETFs is the YieldMax MSTR Option Income Strategy ETF, a $4.8 billion fund focused on MicroStrategy. Depending on the stock, the options available may be limited for the more niche derivative income ETFs, especially compared with the array of options for indexes, and that has the potential to limit liquidity — something investors looking at the category should consider, Anh Tran said. And in general, the income feature works against the tax benefits of the ETF structure, and investors may be better off using them in a tax-preferred account like an IRA, she noted.

“It’s a shiny object,” Tuttle said of the trend in income-generating ETFs. “Investors have been conditioned that you want to invest for income. I don’t think that’s accurate. I think you want to invest so you have the most money possible.” Using puts rather than covered calls can have more upside for those shiny objects, he said. “If I’m going to write options, I’m going to write puts. And nobody really seemed to be thinking about puts. So might as well do it.”