Lead-Lag Live

The Perfect Storm: Si Katara on Daily Overlays, Volatility, and the Future of Income ETFs

• Michael A. Gayed, CFA

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In this episode of Lead-Lag Live, I sit down once again with Si Katara, Founder and CEO of TappAlpha, to dive deeper into how daily option overlays are redefining the balance between growth, income, and risk management.

Since our last conversation, markets have shifted fast. AI valuations have cooled, volatility has returned, and investors are rethinking how to generate income without sacrificing upside. Si shares how TappAlpha’s TSPY and TDAQ ETFs are thriving in this environment, giving advisors and investors precision, flexibility, and true control over their equity exposure.

In this episode:
– Why volatility-based income is replacing bond-based income as rates fall
– How daily options overlays outperform traditional 30-day strategies
– The “pilot course correction” analogy that defines TappAlpha’s edge
– What makes TSPY and TDAQ fundamentally different from other covered call ETFs
– How TappAlpha is scaling to new products, including light-levered and weekly-pay ETFs

Lead-Lag Live brings you inside conversations with the financial thinkers who shape markets. Subscribe for interviews that go deeper than the noise.



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SPEAKER_00:

You know, the analogy I use is if you use a standard options overlay, which is a 30-day call, you have one position that stretches over a full month. But during that month, there's a lot of action that's going on, especially with planned events. Planned events you can normally adjust for if you have the right tools for it. Whereas with dailies, you have precision every day in order to sort of create a tighter match to try and trace the underlying in a much more effective way.

SPEAKER_01:

Now, just two weeks ago, we spoke with Sai Katara, founder and CEO of TAP Alpha, about how his team is redefining core equity exposure through daily covered call overlays. Since then, the market has been moving fast. The S P 500 is retracing following AI valuation fears on earnings, and traders are adjusting expectations of how the Fed might navigate the rest of the year. It's an environment that keeps rewarding innovation and income and risk management. Exactly where Tap Alpha has been making waves. Cy, welcome back to the show.

SPEAKER_00:

Melanie, it's great to be back with you. Thanks for having me on.

SPEAKER_01:

So when we talked last time, you said Tap Alpha was giving investors more control over how they generate income. Since that episode, TSPY has been strong or seen strong engagement and inflows. What's been driving that momentum and what kind of feedback are you hearing from advisors right now?

SPEAKER_00:

I think the biggest thing is, you know, people, nobody knows what direction the market's going to go. Is it up? Is it down? People have been talking about we've been inflated, uh, we've had a frothy market, yet there's still been a lot of momentum behind what the market's doing. And so having a strategy that ultimately has a bit of a hedge gives some cushion. Where if you're just a pure indexed investor, you don't get. And there's been a lot of talk about active management. We sort of see ourselves as a blend. You know, we own the index with the SP 500 through shares of SPY for TSP. Same thing with TDAC. We own the index, the Nasdaq 100, through shares of QQQ. So that's sort of the passive component. But what we add on top is a layer using options where we trade them every day out of the money. And that helps sort of add this uh, it's a it's a pad, it's a hedge in a way, in a market that's a little bit uncertain. The other thing that's really powerful about strategies that use options as the tool to help generate income is that options are based on volatility. Whereas if you're looking at debt in order to get income, uh, bonds, for example, bonds are based on Fed rates. And those rates are coming down. So how do you replace that over time? And that's the key thing where this is the perfect storm of opportunity for products like TSP and TDAC, where we're really adding a story for advisors to share with their clients that say, hey, you want to have exposure. You don't know if it's gonna go up or down, and you're in it for the long term, but in the immediate term, you still have income requirements or you want some volatility reduction, or you want a little downside padding because we don't know what the market's gonna do. And that's where these strategies, I think, really play well for advisors and portfolios to help tell a great powerful story for their clients.

SPEAKER_01:

So you mentioned that the daily overlay allows you to respond faster to shifts in volatility and volatility. We've seen the VIX stay relatively low, but spike, you know, especially around economic data and Fed commentary. How has that day-to-day approach uh uh performed in this environment? And what have you learned uh since the launch?

SPEAKER_00:

One of the most powerful things I think about zero-day options is the precision and control that you can have when you're actively managing a strategy. So I think about it like you know, the analogy I use is if you use a standard options overlay, which is a 30-day call, you have one position that stretches over a full month. But during that month, there's a lot of action that's going on, especially with planned events. Planned events you can normally adjust for if you have the right tools for it. Whereas with dailies, you have precision every day in order to sort of create a tighter match to try and trace the underlying in a much more effective way. So the analogy that I like to use is if I'm flying from New York to Los Angeles and I point my airplane directly to the LAX airport and I take off, and then there's a gust of wind or a thunderstorm on the way, it blows me off track. Well, with a 30-day strategy, I don't have any flexibility to adjust on my journey. Whereas with a zero-day strategy, I have 22 times for every trading day where I can adjust to the changes in the marketplace in order to have a much higher probability to land at my intended destination. And so that's been a really powerful tool in helping manage risk so that you don't get behind the eight ball and leave too much of potentially big upside on the table on days where Jerome Powell comes in dovish and says, yeah, we're gonna cut rates and we have uh flexibility for you know the future rate cuts. Those are the things where you want to get out of the way, let the market do what it's gonna do, catch that with your long position and make sure you don't step on your own feet uh with your options overlay. So that is a really powerful characteristic of why zero-day options are the best fit for the products that we have.

SPEAKER_01:

Yeah, and so given where rates are today, the conversation around income is changing again. The fact it keeps emphasizing data dependence. Investors are already positioning for easing. How does that backtrop influence how uh you think about risk and opportunity in T-SPY?

SPEAKER_00:

I think it's perfect. Uh it's a perfect time to basically replace debt-related income instruments with volatility-related income instruments. So it's a fundamentally different mechanism that drives the thing that's delivering income to your clients. So in this case, you've got uh the volatility, it's a little bit lower, but it still creates enough opportunity to harvest that volatility and deliver it as income. Versus over time, we're seeing the Fed sort of signal that, yeah, things are going to start marching down. So, what does that mean for income opportunity on the bond side or fixed income? So that's where I think if you're looking for replacement for that traditional 60-40 split, this is a great way to supplement pieces of the income sleeve. The big other factor to remember too with TSPY and TDAC, the structure of it is we own real shares of the underlying index, and then we add an option overlay on top. So what that means is you still get exposure to the underlying index while you're generating income versus if you have to take uh an allocation out of core equity exposure and put it in to an income fund, you're no longer exposed to the underlying equities. And that is a huge differentiator when you still have a long time horizon and you want to participate in the potential market upside. And that's the balance that we've been trying to strike between growth and income and the products that we put to market.

SPEAKER_01:

Yeah, I want to pivot now and talk a little bit about the industry, the covered call, ETF's waste keeps expanding. I mean, dozens of new funds have launched this year, promising yield. What sets TAP Alpha apart in that crowd? And what misconceptions do you think persist about how these strategies actually work?

SPEAKER_00:

I think one of the big places that we saw an opportunity in the market was the balanced approach. There's many, many pure income funds out there. They're pushed way to the extreme on generating what they call yield. And we can debate about the definition of that. What they're really delivering are distributions, which is very different than true yield. So that's good if you're a pure income investor and you don't have a requirement over time for growth. Um, there's a lot of obviously just vanilla index um capabilities where you can have a pure growth product. But that huge valley in between to find the balance between growth and income, that was a space that we really wanted to fill. And the reason, I mean, it came out of a need that I had in my own life, where I had a long, I still have hopefully knock on wood, a long time horizon. I've got a young family, but part of the thing that was missing in my portfolio was an income component to help sort of make ends meet. And there was nothing on the market that fit that requirement. And that's one of the reasons why we built Tap Alpha to deliver that. Now that we have, we're seeing more products sort of kind of come into that space, but we're doing in a way that I think is focused on the right metrics in order to deliver long-term sustainable buy and hold products that also have an income engine in them as well. So I think that's our sweet spot. Um, and also just being low to moderate risk versus being pushed way too far on looking for pure income. It's that middle ground that we really fit into the marketplace and we're getting unbelievable feedback from like-minded people that are looking for similar products.

SPEAKER_01:

Yeah, last time I as well you hinted there might be new products uh coming up in the pipeline. Can you give us a glimpse of what's next for Tap Alpha and where you see the biggest opportunity going into 2026?

SPEAKER_00:

It's been so this has been the most exciting thing for me. Uh for folks that know my story. I come from an engineering background. And engineers are notorious for wanting to solve a problem once and not wanting Groundhog's Day over and over again. And one of the things that we did, we were so deliberate with our launch of this product. So T-SPY was our very first ETF. And we built it and we ran it for over a year in order to see the performance. And the market environment that it went through was very challenging. If you remember April of 2025, things went down, things went up in very short time frames. So we weathered some pretty stormy stuff and proved the power of the strategy. Now that we have that kind of street cred, now that we have the track record, and now that we're growing assets, you know, the underlying thing that drives the strategy is our fintech. And everything we learn in T-SPY, we've codified into the software platform that helps us drive it. So now it's finding scale to drive and deliver that same outcome that we've done with T-SPY to new underlying securities. So that's where TDAC came in as the second launch that's been up for just over two months. Um, and it's currently outperforming uh the NDX by almost a percent over a couple months in doing this option harvesting strategy. So we want to take that, scale it to new tickers. But before even going to new uh underlying securities, one of the things that we've heard a lot, and this is more of a retail focus, but retail is saying, hey, you know, Melanie, you're in Canada. One thing they do in Canada a lot is what they call light leverage, 25, 30% lift on top of the underlying cover call strategies that are there. So one of the things that we're talking about doing is providing those types of levered products, light leverage, not you know, 200%, 300%, but more 30%, to sort of give long-term investors a little bit of a boost in both the growth and the income. And then it's been interesting too seeing the retail environment evolve where retail folks are really interested in having more frequent payments. So we're currently doing monthly distributions with a new product set that we're considering actually doing weeklies for some of these Lyft products as well. So keep your eyes peeled. Um, you know, we're working through it. And when things become SEC effective, we'll share tickers and all the things that we're allowed to share at that time.

SPEAKER_01:

Yeah, so and you mentioned a couple times there about education, and you've always put a strong emphasis on education and transparency and learning. How are you helping advisors and investors understand the nuances of daily versus monthly strategies so that they can make more informed decisions?

SPEAKER_00:

I think a lot of it, so conversations like this are really helpful. Um, one of the most important things, I think, for both advisors and retail investors is just cracking open the hood to know what's inside of the construction of the ETF. So we have a lot of conversations, a lot of written materials to do that. But more broadly, um, helping folks really, we we point our educational materials and our um, you know, the content that we create directly at some of the most challenging topics for people to understand when they're ETF investors, especially with income as a focus. One topic that is challenging is this um misinterpretation of what does yield mean versus what does a dividend mean versus what does a distribution mean. And sometimes people market yield when it's not yield at all. It's actually something very different. So making sure people have the tools and the lens to dissect, even through the marketing materials that are out there, whether it's intentional or not, there is a misconception on the things that you should look for. And then the other thing that's really interesting is the metrics. How do you know, apples to apples, what is performing better and what market conditions? And if you're looking purely at a distribution number and it's like, it's giving me 62%, I'm getting 62% returns, that's incorrect. In many cases, the 62% doesn't correlate to returns, it correlates to potentially return of capital. The performance isn't there. You're just in some cases getting your own principle back. So really focusing on the toughest, most important um pieces of information to help advisors and investors make the right decisions for themselves and their families. And there's no right or wrong answer. It's just like, let's get to the facts and present those in a way that make it really just easier for you to make your own call. Um, and that's all that really matters, so that you, you know, you know what you're stepping into because those are really hard-earned resources over lifetimes. Um, and putting them in a place where you think it's one thing and it's a different thing, that's the that's where we get into trouble. So we're really passionate about that and excited to sort of expand um the communication efforts that we have around that.

SPEAKER_01:

Yeah, and talking about uh content and communication, for anyone watching who wants to learn more about Tap Alpha or connect directly with you and your team, where is the best place for them to go?

SPEAKER_00:

Go to tapalphafunds.com. Uh there's a lot of information resources there. And then if you want to get in touch with us, we love feedback. Uh the things, all the things that we've learned are really come directly from uh inbound uh message requests from the website and through Twitter, uh TapAlpha Funds on X as well and on LinkedIn. So just really love the conversations. That's the thing that helps us innovate, helps us sort of refine. And we're like, we're lifelong learners. We love the feedback. And we've made lots and lots of modifications and changes to the products directly based on input that we get. So let's keep the conversation going. We love it. Uh, it's the thing that energizes us and keeps us moving forward.

SPEAKER_01:

Well, great. It's great having uh you on here for communication. Thanks so much for joining me again, and thanks to everyone else for watching. Be sure to like, share, and subscribe for more episodes of Lead Live Live.

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Michael A. Gayed, CFA

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