Investment Strategy
High Income
A systematic income strategy targeting consistent monthly cash flow with limited downside exposure — built for investors who value consistency over unlimited upside.
Strategy Snapshot
Income Type
Monthly
Max Monthly Loss
Defined at entry
Tax Treatment
60/40 (Sec. 1256)
Underlying Index
S&P 500
How It Works
The High Income Strategy ("HIS") generates a monthly income stream by shorting put spreads on the S&P 500 index and investing the remainder in T-Bills. This combination of option premiums and T-Bill yield is designed to produce consistent monthly income. The maximum loss per month under the strategy's defined structure is limited by the spread width — providing a clear downside boundary that unhedged equity exposure does not offer. There is no guarantee of any specific return or yield level.
Investment Thesis
HIS provides investors with a more stable return stream by capping the unlimited upside of the S&P 500 in exchange for more consistent monthly returns.
The strategy's structure limits exposure primarily to 2- and 3-standard-deviation moves. The defined spread structure eliminates exposure to moves beyond the lower long put strike.
For illustrative purposes: if the S&P 500 were to lose 50% in a month (as in an extreme event), the HIS structure would limit the maximum loss to less than 20% under the trade's defined parameters — compared to 50% in an unhedged equity position.
Example Trade
Short out-of-the-money (OTM) puts. Long further OTM puts for defined downside. Monthly expiration.
Generates an upfront premium (option income) combined with T-Bill yield — the blend produces a consistent monthly cash flow.
Maximum loss per month is less than 20%.
Tax Efficiency
Uses tax-advantaged 1256 option contracts in a portion of the portfolio, resulting in 60% of option returns treated as long-term capital gains regardless of holding period.
Risk & Volatility
The strategy's put spread structure defines the maximum monthly loss at the time of trade entry — a structural distinction from unhedged equity exposure. Actual volatility will vary based on market conditions and option pricing at the time of execution.
Who Is This Strategy For?
Ideal for individuals who are willing to give up the upside of the S&P 500 index in exchange for more stable performance and regular income.
Interested in the High Income Strategy?
Learn more about this income-focused options strategy and whether it may fit your portfolio objectives.
