This is an interview with Troy Cates, co-founder of Neos Investments, focused on how Neos designs option-income ETFs and where they fit in portfolios. The core message is that Neos tries to combine income, tax efficiency, and participation in upside by using index options, keeping strategies rules-based and transparent, and varying the risk profile across core, hedged, and boosted products.
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This transcript is a fairly straightforward sponsor-style interview: Steve introduces Troy Cates, co-founder of Neos Investments, and asks him to explain the firm’s origins, product design, and how investors should think about option-income ETFs. Troy’s central thesis is that Neos is trying to turn institutional-style option strategies into transparent ETF wrappers that can be used by ordinary investors, with an emphasis on tax efficiency, rules-based management, and preserving as much upside participation as possible while still generating distributable income. Troy says Neos is a relatively young firm, but the partnership behind it is long-established: he and Garrett Paolella have worked together for over 18 years and have been in ETFs for more than a decade. …
Tactically, the setup favors option-income funds when volatility is elevated because option premium is richer and distributions can be supported, but investors need to watch for capped upside and leverage risk in the boosted funds.
Over the next few months, the base case is that Neos’ core products should remain attractive if markets stay choppy and the funds continue to monetize volatility without giving up too much upside; if volatility collapses or the market trends sharply, the relative appeal could fade.
The structural thesis is that ETFs are increasingly being used as wrappers for sophisticated options-based income and portfolio construction, with tax-aware index-option strategies becoming a durable mainstream allocation tool.
Neos believes the key comparison for its funds is total return, not just headline yield.
He explicitly says the firm is not focused only on distribution figures and instead looks at total return relative to the underlying asset or competitors.
Neos's strategy is to package institutional-style options strategies into transparent, tax-efficient ETFs that any investor can buy.
He says the goal is to take sophisticated option strategies, place them in an ETF wrapper, and make them accessible while emphasizing transparency and tax efficiency.
The fund uses index options on major U.S. equity indexes to create tax-efficient income through the IRS 60/40 tax treatment.
The speaker says index options on the S&P 500, Nasdaq, and Russell are treated as Section 1256 contracts, which receive a 60% long-term and 40% short-term capital gains split regardless of holding period.
Can you walk us through your background and how you came to start Neos?
Troy says Neos is a relatively young firm, but he and Garrett Paolella have worked together for more than 18 years and have been in ETFs for over a decade. He describes moving from trading equities and options in the late 1990s into building option-based ETFs, later managing strategies privately, and then returning to ETFs to bring institutional-style option strategies to a broader investor base.
How does Neos differentiate itself from other fund providers?
He says Neos focuses on combining high income with total return and tax efficiency, rather than just headline yield. The firm builds and trades its products in-house, uses index options to match the underlying equity exposure, and emphasizes transparent, tax-aware ETF structures.
Why does Neos focus on index options instead of single-stock options?
Troy explains that index options better match the full replicated equity portfolios Neos runs, are highly liquid, and provide tax advantages. He notes that S&P 500, Nasdaq, and Russell index options often receive 60/40 Section 1256 treatment, unlike many single-name or ETF option strategies.
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