Option Income Fund


DEFINITION of 'Option Income Fund'

A type of mutual fund with the goal to generate current income for its investors from the premium it earns by selling option contracts. The profits investors earn on the options are taxed as ordinary income, not as dividends, so option income funds are best held in tax-advantaged accounts. This income generating strategy is much riskier than investing in dividend paying stocks, although the returns can be much higher.

BREAKING DOWN 'Option Income Fund'

In his 2005 report to the Securities and Exchange Commission (SEC) stating that Madoff's hedge fund was a fraud, Harry Markopolos compared the Gateway Option Income Fund (GATEX) and other option income funds to Madoff's fund. This comparison showed that Madoff's returns were not realistic. These were just two of the 29 red flags Markopolos reported to the SEC in his 19-page memo.

  1. Ponzi Mania

    The seemingly sudden recognition of Ponzi schemes following the ...
  2. Mini Madoff

    Financial con men that are accused of or have commited crimes ...
  3. Bernard Madoff

    The former chairman of the Nasdaq and founder of the market-making ...
  4. Option

    A financial derivative that represents a contract sold by one ...
  5. Income Fund

    A type of mutual fund that emphasizes current income, either ...
  6. Risk

    The chance that an investment's actual return will be different ...
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