Option Income Fund

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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.

INVESTOPEDIA EXPLAINS '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.

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RELATED FAQS
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    Several forms of speculation enable investors to profit from a decline in the aerospace sector. Short selling aerospace stock ... Read Full Answer >>
  2. When is a put option considered to be "in the money"?

    An option contract is a financial derivative that represents a holder who buys a contract sold by a writer. The moneyness ... Read Full Answer >>
  3. What are some popular mutual funds that give exposure to the drugs sector?

    The pharmaceutical industry has experienced outstanding growth in the 10 years leading up to 2015, consistently outperforming ... Read Full Answer >>
  4. What options strategies are best suited for investing in the aerospace sector?

    The best options strategies for investing in the aerospace sector exploit the sector's volatility and propensity for big ... Read Full Answer >>
  5. What options strategies are best suited for investing in the Internet sector?

    The long straddle and long strangle options strategies enable investors to capitalize on the Internet sector's volatility. ... Read Full Answer >>
  6. What can cause the rate of return to be negative?

    Several factors can cause an investment to have a negative rate of return. Poor performance of a company or companies, turmoil ... Read Full Answer >>
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