Lead-Lag Live

Beyond Buy and Hold: Si Katara on Zero-Day Options, Income Innovation & the Future of ETFs

• Michael A. Gayed, CFA

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In this episode of Lead-Lag Live, I sit down with Si Katara, Founder and CEO of Tap Alpha, to explore how zero-day options are reshaping income investing for everyday investors.

From engineering background to ETF innovation, Katara shares how Tap Alpha’s TSPY ETF delivers daily option overlays on the S&P 500 — capturing upside while generating consistent, tax-efficient income in any market environment.

In this episode:
– Why traditional income products no longer work for investors today
– How zero-day options can mitigate risk and boost returns
– The math behind daily vs. monthly covered call strategies
– Why ETFs solve tax inefficiencies in options-based income
– How Tap Alpha is bridging Wall Street strategies for Main Street investors

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#LeadLagLive #TapAlpha #ETFs #OptionsInvesting #ZeroDTE  #Markets

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SPEAKER_01:

So if you took a 30-day option strategy, which is relatively standard, at a static risk level, 25 delta calls that you're selling over 30 days, and you get X dollars in premium. If you did the same thing, 25 Delta calls, but you just traded it every day for the 22 trading days in between and added it up, you would get four to four and a half times the option premium potential versus a 30-day strategy.

SPEAKER_00:

A clear sign that investors are hedging their bets. In this kind of market, investors want growth but can't ignore income or volatility. That's where Tap Alpha comes in. Their flagship TSPY ETF puts a daily covered call overlay on SPY, aiming to capture upside while generating consistent income. It's a rethink of how core equity exposure can work. And it's led by my guest today, Cy Katara, founder and CEO of Tap Alpha. Cy, it's great to have you here.

SPEAKER_01:

Melanie, great to be with you. Thanks so much for having me.

SPEAKER_00:

So let's sort of start at the beginning. What led you to launch Tap Alpha in the first place? And what problem in the market were you trying to solve?

SPEAKER_01:

I think the interesting thing for me was you see powerful investing strategies available to Wall Street folks and high net worth individuals, but the power of those historically hasn't been unlocked for everyday investors and advisors. And Tap Alpha really set out to try and change that. The whole origin of actually where the company came from, I didn't come from a finance background. I was a computer engineer by trade, so kind of a programmer, uh, ended up going to work in Silicon Valley and then started my very first tech startup in 2005. Built it, ran it for 17 years, but then I sort of blinked my eyes and half my career was behind me. And I realized if I wanted to do anything else with my life, I had to make a change at that time. But the challenge was this was October of 2022 and markets were way down. I'd always been an SP 500 buy and hold investor, and I didn't want to sell equities to make ends meet. So I remembered a strategy my dad had taught me, he was an engineer turned advisor, and he taught me about covered calls. But the novel thing that just came out that same quarter was short-dated covered calls. They call them zero DTE. They're basically options that just expire every day. And as an engineer, it kind of hit me. I was like, well, that makes a lot of sense for precision and risk management. If you can actually have daily granularity, you can maybe mitigate risk versus longer dated stuff. So I tried it and I didn't know if it was going to amount to anything. But fast forward two months and just the option premiums on top of my spy shares covered the lion's share of our family's mortgage when I was transitioning to the next opportunity. And that for us was a huge financial relief. Um the hard part, it just took a lot of time and it took some expertise. And I thought to myself, man, if it's helping our family like this, how can we help other families like ours? And that's what took us down the road of actually figuring out ways to get it to market. We learned about ETFs, we built some technology underneath it, we put it together, that plus transparency in education, and all of a sudden we have a real opportunity to do things a little bit differently to help families get growth plus income in a transparent and consistent way. And that's what actually ended up going into T-SPY.

SPEAKER_00:

That's a fantastic story. I want to uh uh lead on a little bit more into that. Uh investors are already a lot are or investors already lean on traditional income products, but they you've argued that they're falling short. What exactly is missing in though in those other products, and how does TAP alpha address uh the gap?

SPEAKER_01:

There's some key challenges with traditional income sources. Number one, bond yields, yeah, interest rates have been high, but they're coming down. You're seeing reductions happen. So how do you replace that income? Uh tax drag, if you don't have tax-sufficient income, you know, it's not what you earn, it's what you keep. That's what matters. And ultimately, there's always a trade-off, right? Especially with covered calls. You can get income today, but many times you're capping growth for tomorrow. And that's the trade-off. And we wanted to solve for those key challenges. Um, so what's zero-dated, we've actually solved significantly um the trade-off. You can keep up with the underlying index and generate consistent income in a pretty balanced way. And that was one of the things that we saw in the market that didn't really exist before we were able to launch TSP and our second fund T DAT. Since then, we've proven the model where you can generate tax-efficient uh double-digit income and track the underlying securities depending on market conditions in a pretty consistent way. Those are the key problems we wanted to solve. And then you think about volatility. 2025 has been a remarkable year for the ups and the downs, and we've been on an amazing bull run lately. But if you think back to April, the VIX was above 30 for two weeks, and then on April 9th, it shot above 60. So, are you using tools that can go out and harvest that volatility and translate it into income? That's one of the things that options can do if you end up using them in an intelligent way. And that's what we put together in the ETFs that we've launched to market.

SPEAKER_00:

More deeply into that again. When it comes to core equity exposure, uh the SP 500 or NASDAQ 100, why do you think it makes sense to rethink the structure instead of just layering on additional risk with more products?

SPEAKER_01:

It's really interesting. If you think about, you know, in my case, like SP 500 was my whole portfolio essentially, just buy and hold, and it did well for us if you have a long time horizon. But thinking about enhanced core allocations, you talk about, you know, passive investing has been popular for a while. And that popularity is going down in in sort of lieu of active ETF management. But what if you could take a passive core and add an active uh options-based strategy on top where you get that balance best of both worlds? That's what we wanted to put together because in every portfolio, you're gonna see exposure to the SP 500. In many uh portfolios, you're gonna see exposure to the Nasdaq 100. But the question is, are you maximizing the potential of what you have? And that was actually, you know, it's it's a bit on the nose, but that's actually why we need the company Tap Alpha. Tap into the potential of what you already have in order to get more from it. And that was the idea of adding an income component to the underlying SP 500 exposure.

SPEAKER_00:

Yeah, so as you as you've mentioned, Say your fund takes a daily approach to the options overlay compared to monthly setups. We see some from some funds like a JEP, IRS PYI. Why specifically daily, and what does that change in terms of outcomes?

SPEAKER_01:

It's actually was remarkable. And when we were doing the research and actually doing this to put the product together, we did the comparisons and there were three huge reasons why dailies made sense for what we were trying to accomplish with the balance of broken income. The first thing was option premium potential. So if you took a 30-day option strategy, which is relatively standard, at a static risk level, 25 delta calls that you're selling over 30 days, and you get X dollars in premium. If you did the same thing, 25 Delta calls, but you just traded it every day for the 22 trading days in between and added it up, you would get four to four and a half times the option premium potential versus a 30-day strategy. That alone was a huge reason why we decided to go with zero day, just because the risk-adjusted returns of the option piece was significantly amplified. Second thing was overnight risk. We're true zero DTE, meaning our option position opens in the morning and it's done by the end of the day in most cases. So, guess what you avoid? You avoid overnight risk where earnings calls happen after hours, or macro news happens before market open. And those are big swings, which you don't want to guess with your option position where to put it, but you don't have to. If you can avoid it, wait a little bit until the market digests it, and then you can mitigate risk in a much more effective way. And then the third thing, which I just found as an engineer, made a lot of sense, was you get 22 at bats, where you can reset your strike price every day versus being stuck. And the the analogy that I use is if you're flying from New York to LA and you get one shot to point your plane at LAX's airport, you take off and a gust of wind comes, or there's a thunderstorm and it blows you off course, there's no opportunity to readjust your course and actually land where you intended to. But if you can actually adjust your course 22 times based on those events that happen, there's a much higher probability you're gonna land where you intended. And that's the power of true zero DTE option strategies. And that's why we're using this overlay in many, many environments now.

SPEAKER_00:

You've done a great job of explaining this. I want to pivot just a little bit to talk about taxes. Uh taxes are always top of mind for advisors and their clients. How do you think about tax efficiency when you design strategies and why does it matter so much?

SPEAKER_01:

It's incredibly important, especially if you're using it in unqualified accounts. So, like I said earlier, it's not what you earn, it's what you keep. Um, when I did this stuff in my individual brokerage account, I got crushed with ordinary income. There's two components of value, right? There's the option premiums and then the capital growth of the underlying security. Both settings, I actually had to pay ordinary income. So options premiums that I collected. And then if I um sold some spy shares, that spy sale, even if I held the spy for a longer amount of time, would be considered ordinary income because of this thing called straddle rules. But guess what? You put that same strategy inside an ETF vehicle. ETFs are phenomenally tax efficient. And so those two things actually get much better from a tax efficiency standpoint. So the option premium, now that you're at scale, you can use a bigger tool like SPX options. Those are what they call 1256 contracts, which means they're taxed at potentially 60% long-term cap gain, 40% short-term. So that's a nice advantage. But the real game changer comes in the underlying shares. So in uh Straddle rules, what happens is when you when you take a uh cover-call position, the underlying equity, the capital gains clock pauses. So if you buy SPY and you do this every day and then you sell it even 18 months later, the growth you have to pay short-term cap gain on. That hurts. But if you do it in an ETF, because we don't realize the gain within the ETF, and ETFs have this magic thing called in-kind redeems. If you sell a share of TSPY 18 months later, those spy shares that correspond to it go back to the bank in kind, and all the uh investor has to pay is deferred long-term capital gains on the nav growth of the ETF. So ETF solve a tax problem that is uh rampant for options-based strategies. That's why it's the perfect vehicle to execute these types of things so that you can actually get much more tax-efficient outcomes than if you did this on your own.

SPEAKER_00:

It's great. And and Saya, why do you believe now, as well as well as it being Q4 and at the end of 2025, but why do you believe now is the right moment for this kind of strategy for investors and for advisors? What about today's market environment makes uh the top alpha approach especially relevant?

SPEAKER_01:

There's two things. One, interest rates are going down. So how do you replace income? And volatility in 2025 compared to 2024 and before is going up. That's the perfect environment to add an options capability because you harvest that volatility and you're replacing income that's no longer achievable using uh traditional debt-based instruments. Those two things, plus the fact that zero DTE now exists, and this is, you know, zero DTE on the buy side, it gets kind of a tough wrap in the retail markets because people can use it to speculate on the buy side. But the flip side is if you're using it to mitigate risk and you're selling them, there's lots of advantages. So you put all that together and you manage it within the package of an ETF, that creates a really powerful solution that you can use in portfolios in many different ways.

SPEAKER_00:

And so TSPY has already surpassed 100 million in AUM just over a year after launch. Why do you think it's resonating with advisors and how are they using it in their portfolios?

SPEAKER_01:

I appreciate it. Um, I think advisors are increasingly looking for ways to make core equity exposure work harder. Uh, and that's where T-SPY fits in. Dollar for dollar, you get the same exposure to the SP 500 for T-SPY or the NASDAQ 100 for TDAC, but you're adding this option strategy on top that, and that execution really adds another, you know, several characteristics that advisors seem to like. The first one is um we're able to distribute about 14% potentially tax-efficient income in addition to still having exposure to the SP 500. In a lot of cases, the trade-off for one or the other, but in this case, you get a chance to have exposure to both. The second thing is the options income, it actually acts as an offset. So it takes the correlation down, the beta, down to about a 0.88. And we're still getting market-like returns. So that's sort of always been something that advisors communicate to us is like a holy grail. Get the market-like return, but reduce the beta and the correlation a bit, uh, you get better risk-adjusted returns. That's what people are going for. And that's what we've been able to achieve with TSP as the first product and TDAC as a second. So putting all that together in a tax-efficient package like an ETF, it seems to be resonating where people are looking at, I've got core equity exposure now. Why don't I just complement or even wholesale replace it? Because I'm going to get the same core equity exposure. But then now I'm adding this income and options capability on top. So the bad analogy that we use is uh you've got a vanilla cone, that's like the SP 500, but now you're adding sprinkles with the options income capability on top. And that actually has been resonating really well as a compelling package that advisors can use in multiple places in their portfolios.

SPEAKER_00:

And lastly, before we wrap up, for anyone watching who wants to learn more about Tap Alpha, see the funds in action or connect with you directly, where's the best place for them to go?

SPEAKER_01:

Take a look at the funds, tapalphafunds.com. Um, all the fund descriptions are there. And then uh you can reach out to us through the website. We love interactions from advisors, from individual investors, because what's interesting is we launched TSP and we run it for about a year now, but we've proven out what we intended to accomplish. And now this method and the tools that we built to run it can be applied to many, many things. And so we love to hear from the market to see where there might be use cases for um areas or securities that you really have conviction in. We're all ears to figure out how we can best serve uh the market needs.

SPEAKER_00:

That's great. So make sure to head over to the website that Sai mentioned. And thanks so much again for joining me, Sai. And uh thanks to everyone for watching. Be sure to like, share, and subscribe for more episodes of Lead Light Live.

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Michael A. Gayed, CFA

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