Defiance has launched a new ETF that aims to achieve a target annual income of 20% by engaging in option-based strategies on the S&P 500.

The ETF aims to deliver annual income of 20% with distributions made monthly.

The Defiance S&P 500 Income Target ETF (SPYT US) has been listed on NYSE Arca with an expense ratio of 0.94%.

The fund’s strategy is centered on investing in S&P 500 ETFs while simultaneously executing daily credit call spreads on the prominent US large-cap index. This involves selling call options with strike prices at or near the money, while simultaneously purchasing call options above that strike price.

By leveraging short-term options, the strategy aims to offer investors an “enhanced” yield compared to traditional option-based approaches, primarily deriving income from the net option premium which can act somewhat as a buffer during periods of S&P 500 decline.

While the strategy typically lags traditional long S&P 500 exposure when the index rises above the lower strike price, it stands to benefit if the S&P 500 surpasses the upper strike price, capturing further upside appreciation in the index’s value. Consequently, the approach not only maximizes income potential but also retains some upside growth opportunities for investors, as outlined by Defiance.