IWMI is the NEOS Russell 2000 High Income ETF, launched June 25, 2024 — the newest addition to NEOS Investments' family of high-income, tax-efficient covered call ETFs that includes SPYI and QQQI. It applies the same third-generation call spread approach to the Russell 2000, using actively managed RUT index options that qualify as Section 1256 contracts to generate monthly income with significantly better tax treatment than first-generation alternatives. IWMI holds a full replication of the Russell 2000 on the equity side and writes out-of-the-money call spreads on the RUT index on the options side, aiming to preserve NAV while delivering competitive income from small-cap exposure. Current grade and live metrics are on our free grading dashboard, updated every market day.

What Is IWMI?

IWMI is an actively managed ETF that holds Russell 2000 component stocks in approximately their index proportions — a full replication of the small-cap benchmark — and writes a systematic call options overlay on top using RUT index options. RUT is the ticker for the Russell 2000 Index options that trade on the Cboe, and these options are classified as broad-based index options under the Internal Revenue Code, which means they qualify as Section 1256 contracts. This is the same structural choice that NEOS makes with SPYI (using SPX options on the S&P 500) and QQQI (using NDX options on the Nasdaq 100) — writing index options rather than ETF options or individual stock options to capture the favorable 60/40 tax treatment.

The fund is actively managed by NEOS's portfolio team, which makes ongoing decisions about strike selection, spread width, and coverage levels each month based on prevailing market conditions. This active management distinguishes IWMI from RYLD's fully mechanical passive index approach and is what enables the strategy to write out-of-the-money calls rather than being locked into an at-the-money strike mandated by an index. NEOS also actively seeks tax-loss harvesting opportunities throughout the year on both the equity holdings and the options positions — another layer of tax efficiency that passive index funds cannot provide.

The RUT Call Spread Strategy

IWMI generates income by selling call options on the RUT index at a strike above the current market level — out of the money — while simultaneously buying call options at a higher strike to form a spread. The net premium collected from this spread position (short call premium received minus long call premium paid) is the source of IWMI's monthly distributions. By writing out-of-the-money rather than at-the-money calls, IWMI gives the equity portfolio room to appreciate before the call cap kicks in. When the Russell 2000 rises moderately — within the buffer between the current index level and the short call strike — IWMI's stock portfolio participates in that appreciation without being capped. Only when the index rises above the short strike does the call overlay begin limiting further gains.

The long call purchased at the higher strike is the spread component that bounds the maximum obligation on the short position. If the Russell 2000 rallies sharply beyond the short strike, the purchased long call begins gaining value, partially offsetting the cost of the short call being exercised. This spread structure is what allowed NEOS's flagship SPYI and QQQI funds to maintain approximately flat NAV in rising markets — capturing the out-of-the-money buffer of upside before the cap — and IWMI applies that same mechanics to small-cap exposure.

The active management means the strike prices, spread width, and overall income generated can vary month to month as NEOS adjusts the overlay based on current implied volatility, market outlook, and available premium. In high-volatility small-cap environments — which occur frequently given the Russell 2000's inherent volatility characteristics — the premiums available on RUT options can be particularly rich, giving IWMI's managers more income to harvest relative to comparable large-cap strategies in the same conditions.

Section 1256 Tax Treatment and Tax-Loss Harvesting

IWMI's tax efficiency is one of its most important distinguishing characteristics in the Russell 2000 covered call category. The RUT index options used by IWMI qualify as Section 1256 contracts under the Internal Revenue Code, meaning that all gains and losses from the options overlay receive the 60/40 capital gains split: 60% treated as long-term and 40% treated as short-term, regardless of how long the positions are held. At the 37% ordinary income tax bracket, this translates to an effective blended rate of approximately 23.8% on the options income — compared to 37% for ordinary income treatment on equivalent distributions from first-generation funds in the same category.

For a fund paying 15% annualized income, that tax treatment difference represents real money. An investor in the 37% bracket receiving 15% gross from a Section 1256 fund nets approximately 11.4% after federal income tax. The same investor receiving 15% gross from an ordinary income fund nets approximately 9.5% — a gap of nearly 2 full percentage points annually, compounding over the life of the investment. That structural after-tax advantage is permanent and consistent, not a one-year anomaly.

Beyond the Section 1256 treatment, NEOS's active management also creates opportunities for tax-loss harvesting throughout the year. When the options positions or equity holdings incur losses, the team can realize those losses to offset gains elsewhere in the fund, reducing the taxable income passed through to investors. This tax-loss harvesting capability — which passive index funds like RYLD cannot systematically employ — adds an additional layer of after-tax efficiency that compounds meaningfully over multi-year holding periods. All tax guidance is general; consult a qualified tax professional for your specific situation.

Small-Cap Income with Third-Generation Design

The Russell 2000 presents a specific opportunity for a third-generation covered call approach. Small-cap stocks are structurally more volatile than large-cap stocks, which means RUT options carry richer implied volatility and generate more premium per dollar of coverage than equivalent large-cap index calls. This elevated premium environment means IWMI can potentially collect meaningful income while still writing calls at strikes far enough out of the money to preserve substantial upside participation — a combination that is harder to achieve when writing calls on lower-volatility large-cap indexes.

The Russell 2000's return dynamics also make the OTM call spread approach particularly relevant. Small-cap stocks tend to exhibit strong cyclical recovery rallies — when domestic economic conditions improve, the Russell 2000 can surge quickly and significantly. Writing at-the-money calls, as RYLD does, means that virtually all of those recovery rallies are forfeited to call buyers. Writing out-of-the-money calls, as IWMI does, means the equity portfolio participates in the initial surge up to the short strike before the cap engages. In a category where the underlying index can move 20–30% in a single strong quarter, that OTM buffer makes a meaningful difference in total return capture.

Key Risks

IWMI's most significant limitation is its track record length. Launched in June 2024, the fund had less than two years of live performance history as of early 2026. While NEOS has an established track record with SPYI (since August 2022) and QQQI (since January 2024), IWMI itself is unproven across a full market cycle including a prolonged bear market in small-cap equities. The strategy has theoretical soundness and is consistent with NEOS's proven approach on other indexes, but investors committing meaningful capital deserve to weight the limited history appropriately.

Small-cap equity risk is inherently higher than large-cap risk. The Russell 2000 experiences larger drawdowns during economic contractions, is more sensitive to domestic credit conditions and interest rate changes, and has historically exhibited higher volatility with somewhat lower long-run total returns than large-cap benchmarks. The call spread overlay provides modest cushioning but does not meaningfully protect against sharp small-cap corrections — in a severe small-cap bear market, IWMI will decline significantly alongside the index. Investors choosing IWMI for its income profile should also be comfortable with the underlying equity exposure, not just the distribution yield.

The 0.68% expense ratio is reasonable for an actively managed options-overlay fund and is in line with SPYI and QQQI, but it is higher than RYLD's 0.60% passive approach. With approximately $654 million in AUM as of late 2025, IWMI has sufficient scale for normal secondary market trading but is not yet a multi-billion-dollar fund — liquidity is adequate but thinner than the most established large-cap covered call ETFs.

Who Should Consider IWMI?

IWMI is the strongest structural case for small-cap covered call income in taxable accounts. The Section 1256 tax treatment combined with active tax-loss harvesting creates an after-tax yield profile that first-generation small-cap covered call funds simply cannot match. Income investors with taxable brokerage accounts who want meaningful Russell 2000 exposure alongside monthly distributions will find the tax efficiency gap between IWMI and ordinary income alternatives to be one of the most compelling structural advantages available in the small-cap covered call category.

For investors in tax-advantaged accounts where the Section 1256 advantage is irrelevant, IWMI's case rests on the OTM call spread approach delivering better NAV preservation and upside participation than at-the-money alternatives — a genuine structural improvement, but one that requires a longer track record to fully validate in live small-cap market conditions. Investors with multi-year time horizons who want both small-cap income and capital appreciation potential will find IWMI's third-generation design the most defensible framework available in this category. Those who need the longest possible track record and deepest secondary market liquidity should note that RYLD's five-plus year history and larger AUM provide certainties that IWMI's recent launch cannot yet match.

Browse all Russell 2000 covered call ETFs at our Russell 2000 category page, or return to the ETF Fund Directory.

IWMI brings a genuinely differentiated approach to the Russell 2000 covered call category. The RUT call spread strategy using Section 1256 index options delivers after-tax income efficiency that first-generation approaches cannot replicate. The active tax-loss harvesting adds a further layer of tax management unavailable to passive funds. And the out-of-the-money strike selection preserves meaningful upside participation when small-cap stocks rally — a crucial advantage given the Russell 2000's historically strong cyclical recovery moves that at-the-money strategies completely forfeit.

The primary caveat is time. IWMI launched in June 2024, giving it a limited track record compared to more established alternatives. The strategy is structurally consistent with NEOS's proven approach on larger indexes, which provides meaningful comfort — but IWMI itself has not yet been tested through a full small-cap bear market, an extended low-volatility grind, or a major domestic economic contraction. Investors who specifically want small-cap covered call income with the most tax-efficient structure available are well-served by IWMI's design. Those who need the longest track record and largest AUM for confidence should weigh that limited history carefully before sizing a significant position.

Track IWMI's current grade and live metrics on our free dashboard, updated every market day.

⚠️ Tax Note: Tax treatment shown is general guidance only and may vary year to year. Section 1256 treatment depends on how options are classified; consult a tax professional for your specific situation.

⚠️ Disclaimer: CoveredCallETFHQ is for informational purposes only and does not constitute financial advice. All data sourced from Yahoo Finance. Grades and scores reflect our proprietary methodology and should not be used as the sole basis for investment decisions. Past performance does not guarantee future results. Always consult a qualified financial advisor before investing.