The Core Strategy
SPYI (NEOS S&P 500 High Income ETF) holds the actual stocks of the S&P 500 (mostly) but writes Call Options on the index (SPX) to generate cash.
Unlike older funds that sell calls "At The Money" (capping all upside), SPYI sells them "Out of The Money" (OTM).
- The Benefit: If the market rips 5% higher, SPYI can capture some of that growth before the cap kicks in.
- The Cost: The premiums received are lower than ATM calls, but arguably more sustainable.
The Tax Secret: Section 1256
This is SPYI's superpower. Because it trades index options (SPX) rather than ETF options (SPY), it qualifies for 60/40 tax treatment.
Regular Income (JEPI)
Taxed at your highest marginal rate (e.g., 37%).
Section 1256 (SPYI)
60% taxed at Long Term Cap Gains (20% max). 40% at Short Term.
*Disclaimer: Not tax advice. Consult a CPA.
SPYI vs JEPI
The debate is endless, but here is the simplified breakdown:
- Hold JEPI if: You want lower volatility. JEPI uses ELNs and defensive stock selection (low beta) to cushion drops.
- Hold SPYI if: You want tax efficiency and potentially more upside capture during bull runs.
The Verdict
SPYI sits firmly in Tier 4 (The Accelerator) of the Risk Spectrum. It is a fantastic tool for income, but do not mistake it for a bond. It is still 100% equity risk.