Hedging Tech Exposure: Why the NEOS Hedged ETFs Outperform Traditional Buy-Write Strategies in Turbulent Markets

The April 2025 Nasdaq selloff, triggered by sweeping U.S. tariffs and retaliatory measures from global trading partners, exposed the vulnerabilities of traditional buy-write strategies like the First Trust Nasdaq BuyWrite Income ETF (FTQI). While FTQI's static approach to generating income through call options failed to cushion losses, the NEOS Nasdaq-100 Hedged Equity Income ETF (QQQH) and its S&P 500 counterpart (SPYH) demonstrated superior resilience through their laddered options strategies. This analysis explores how NEOS's dynamic hedging framework outperforms conventional methods in high-volatility environments, offering actionable insights for investors seeking tax-efficient, tech-focused protection.

The April 2025 Selloff: A Stress Test for Hedging Strategies

The Nasdaq Composite plummeted 11% over two days in early April 2025, marking one of the worst sell-offs since the 2020 pandemic crash. The VIX, or “fear gauge,” surged to 45.31, reflecting extreme market uncertainty. During this period, FTQI—a buy-write ETF that sells one-month at-the-money Nasdaq-100 call options—mirrored the broader market's decline. While FTQI continued to distribute income (e.g., $0.188 in April 2025), its lack of downside protection left it exposed to the same volatility as the Nasdaq-100.

In contrast, QQQH's laddered options strategy—combining put spread collars, call writing, and far-out-of-the-money put sales—mitigated losses. QQQH delivered a 4.06% return in April 2025, significantly outperforming the Nasdaq-100's collapse. This was achieved by using premiums from call options to fund out-of-the-money put spreads, creating a buffer against downside risk. SPYH, which applies the same strategy to the S&P 500, similarly demonstrated resilience, though its performance during the selloff was less explicitly detailed.

Why Laddered Options Outperform Static Buy-Write Strategies

1. Dynamic Downside Protection
   QQQH's put spread collars adjust to market conditions, providing a safety net during sharp declines. For example, during the April selloff, QQQH's put spreads absorbed a portion of the Nasdaq-100's 30% peak-to-trough drop, while FTQI's static call-writing strategy offered no such cushion. This structural difference explains why QQQH declined significantly less than the benchmark.

2. Tax Efficiency and Income Generation
   QQQH's use of Section 1256 contracts ensures favorable tax treatment, with 60% of gains taxed as long-term capital gains. Additionally, 98% of its distributions are classified as return of capital, deferring tax liabilities. FTQI, while generating a 12% yield, lacks this tax advantage and relies solely on call premiums, which do not offset losses during downturns.

3. Risk-Adjusted Returns
   QQQH's Sharpe ratio of 0.85 (1-year) and Sortino ratio of 1.07 highlight its ability to deliver strong returns per unit of risk. In contrast, FTQI's risk-adjusted metrics lag, as its strategy prioritizes income over capital preservation. During the April selloff, QQQH's Omega ratio of 1.15 further underscored its favorable balance of gains and losses.

Actionable Insights for Investors

For investors exposed to tech-heavy portfolios, the April 2025 selloff underscores the importance of adaptive hedging. NEOS's QQQH and SPYH offer a compelling alternative to traditional buy-write strategies by:
- Balancing Income and Protection: Generating consistent yields while mitigating downside risk through dynamic options structures.
- Enhancing Tax Efficiency: Leveraging Section 1256 contracts to reduce tax drag.
- Prioritizing Resilience: Maintaining exposure to growth sectors without sacrificing capital preservation.

Conclusion: Hedging for the Unpredictable

The April 2025 selloff revealed the limitations of static buy-write strategies like FTQI in volatile markets. NEOS's laddered options approach, as seen in QQQH and SPYH, provides a more robust framework for managing downside risk while maintaining income generation. For investors seeking to navigate turbulent markets—particularly those with significant tech exposure—adopting a hedged equity income strategy offers a path to resilience and tax efficiency. As geopolitical and macroeconomic uncertainties persist, the ability to hedge dynamically will remain a critical advantage.