Option-income ETPs: what 25 months of data show
Thirty-nine European products that sell options for income, measured month by month against the S&P 500. Three questions: do they really diversify, do they hold up when markets fall, and do the distributions rise when volatility does. Two of the three answers surprised us.
What was measured
Every IncomeShares product with at least six months of prices — 39 of them — over the 25 months from September 2024 to September 2026. Monthly total returns, price plus distributions, in the fund's own currency. The benchmark is a distributing S&P 500 ETF over exactly the same months. Nothing here is simulated: these are the prices and the payments as they happened.
The period is short and it was, on the whole, a rising market. Nothing below tells you how these products behave in a long decline, because they have not lived through one.
1. They do diversify — more than we expected
The obvious objection to a basket of option-income products is that they all earn money the same way: selling volatility. If that is the dominant risk, the products should move together, and the diversification would be cosmetic.
The data says otherwise. The average correlation between pairs of products is 0.39 across all months — and in the months when the index fell it drops to 0.25, rather than rising.
That is a real finding. The underlyings — from Bitcoin miners to European banks, from gold to Berkshire Hathaway — behave differently enough that the option overlay does not make them one trade.
2. But they are not defensive
Internal diversification and market exposure are different things, and this is where the story turns. Across 10 down months and 15 up months:
| Months | S&P 500 | Basket | Capture |
|---|---|---|---|
| When the index fell (10) | −2.17% | −3.13% | 144% |
| When the index rose (15) | +3.81% | +5.92% | 155% |
The basket captures 155% of the rises and 144% of the falls. Its beta to the index is 1.49 and its monthly volatility is 6.6% against 3.9%. These are not products that cushion a fall: they are equity exposure with a bit more than one and a half times the swing, which happens to pay cash along the way.
The ratio is mildly in their favour — they capture more of the upside than of the downside — and over a rising period that compounds nicely. Reverse the market and the same arithmetic works against you.
3. The distributions do rise with volatility
This is the claim we most wanted to test, because it is the one thing that would make these products genuinely different from dividend funds: when markets get nervous, option premiums get richer, so the income should rise exactly when everything else is cutting.
Splitting the months into three groups by the realised volatility of the index:
| Regime | Index volatility | Distribution paid | Basket return | S&P 500 |
|---|---|---|---|---|
| Calm months | 9% | 3.69% | +2.98% | +2.10% |
| Normal months | 12% | 3.84% | +1.77% | +1.05% |
| Turbulent months | 18% | 4.50% | +2.16% | +1.14% |
The income per month goes from 3.69% to 4.50% — a fifth more — as volatility rises. For someone living on the income, that is the opposite of a dividend portfolio, where a crisis brings cuts. Here the crisis is the raw material.
4. The part that should worry you
The average distribution, annualised, went from 41.7% in 2024 and 42.2% in 2025 to 59.5% in 2026. A forty per cent increase in a year.
There are two explanations and they point in opposite directions. Either option premiums rose because volatility did — in which case it is money earned — or the funds are distributing a growing share of capital. The coverage figures settle it: of the 19 products held by the All IncomeShares strategy today, 17 distribute more than they earned, and the average price of those products fell 32% over twelve months while paying an average 36%.
What we conclude
Three findings, and they do not all point the same way, which is why they are worth publishing.
The diversification is real. Thirty-nine products with a correlation of 0.25 in down months is a genuine spread of risk, not a marketing line. We expected to disprove this and could not.
The market exposure is higher, not lower. A beta of 1.49 and 144% downside capture mean these products carry more market risk than the index they are often compared to. Anyone buying them for safety has misread them.
The income is partly capital. A 59% annualised distribution against prices falling 32% is not a yield in any ordinary sense. It is a conversion of capital into cash, with tax paid on the full amount at each step.
None of this makes them bad instruments. It makes them instruments whose cost is paid in capital rather than in return — and that cost is measurable, which is what this site exists to do. Our Sustainable Income screener ranks exactly this: how much of what a fund earns is actually going out as income, and how much of it is the fund eating itself.
Method and limits
- 25 months, one marketSeptember 2024 to September 2026, a period of rising prices and, at times, high volatility. The best possible conditions for selling options. No conclusion here extends to a long bear market.
- Equal weightsThe basket is an equal-weight average of the products available each month, from 11 at the start to 39 at the end. A capitalisation-weighted basket would look different.
- Volatility is a proxyWe use the realised volatility of the index each month, not the VIX, because we hold daily prices rather than option data. The two move together, but they are not the same thing.
- SurvivorshipOnly products that exist today are measured. None of these has closed yet, but in this corner of the market closures are a matter of when.
- Not adviceThis is a measurement, not a recommendation. What the numbers cannot tell you is whether the risk suits you.