An ETF with a monthly income distribution schedule can seem like a calmer way to ride out the volatility in technology stocks than owning the Nasdaq-100 outright. Just don’t mistake that steady payout for downside protection; you can still lose principal and miss out on the next rally.
Jonathan Molchan, head of ETF trading and senior portfolio manager at Shelton Capital Management, says the STF Tactical Growth and Income ETF (SEPQ) is currently invested in stocks while seeking monthly cash flow through options. He describes the fund’s rules as a way to avoid selling after sudden market shocks, while retaining the ability to reduce stock exposure during a prolonged decline.
The strategy makes sense for investors who want growth exposure alongside monthly payouts and can accept a rules-based fund that might trail the Nasdaq-100. Even so, it doesn’t absolve investors of the need to understand the real risks (and fees) behind a fund that attempts to balance growth with monthly income.
Here is how Molchan, who spoke in an interview on ETF Spotlight with TheStreet’s Caroline Woods, separates a short-term market shock from a sustained trend change, and how a monthly income fund like SEPQ can fit certain investors’ needs in a volatile tech market.
Note: The market musings expressed herein are those of the interviewed guest and should not be treated as professional investment advice. Readers should consult a certified financial planner (CFP) for individualized advice based on their available capital, goals, risk tolerance, and time horizon.
Why SEPQ does not react to every technology selloff
SEPQ holds roughly 100 growth companies that mirror many of the top names in the Nasdaq-100 and S&P 500, according to Molchan. Some of the top stocks held in the ETF as of November 2026 included Nvidia, Apple, Microsoft, and Tesla. Depending on market conditions, the fund can dial its stock allocation to between 100%, 50%, and 10%. Dropping to 10% puts the portfolio in a defensive stance, shifting the remainder into Treasury bills — short-term government debt that functions much like cash.
Another 10% drop would push the fund into a fully risk-off stance, Molchan says, with a multi-day confirmation process required before it rotates back into stocks. By design, the model ignores sharp V-shaped reversals — where prices plunge suddenly and bounce back just as quickly — and only reacts when a market trend proves durable.
The outsized moves and these sharp V-shaped moves, we do not respond to.
Jonathan Molchan, when asked how SEPQ responds to interest-rate and technology volatility
Molchan’s logic is as much behavioral as it is tactical. When people sell in a panic, they frequently miss the market’s best rebound days, which often show up right after the worst crashes — just like the quick recoveries that followed declines around the headlines on Liberation Day (when tariffs were broadly imposed) and at the outset of the war on Iran.
A rules-based system, like the one employed by SEPQ, doesn’t guarantee higher returns, but it gives the fund a preset game plan so shareholders aren’t forced to make tough calls when fear is running hottest.
How SEPQ seeks income without selling all its upside
The income component of the fund comes from options — contracts whose value is tied to a stock or index. Molchan noted that SEPQ relies on call spreads rather than covered calls. Traditional covered calls cap gains when stocks rally past a set strike price, whereas call spreads combine option positions to collect income while keeping more of the upside open.
The idea of SEPQ is that we employ a call spread, not a covered call.
Jonathan Molchan, when asked why investors would choose SEPQ instead of the Nasdaq-100
Molchan’s test for an options-income strategy is total return, meaning price change plus distributions, rather than yield alone. He said investors should question a strategy that gives up 5% or 10% of total return merely to generate cash flow. SEPQ’s stated purpose is to supplement investor cash flow without sacrificing a growth profile, not to transform a volatile tech portfolio into a bond substitute.
That distinction matters because stocks and long-duration bonds — bonds that mature years in the future — can decline in tandem when inflation and interest-rate expectations rise. Molchan cited 2022 as a period when long-duration bonds lost more than the Nasdaq-100. In that setting, shifting toward Treasury bills can offer a different form of defense than relying on bonds alone.
Why a 10% distribution yield does not make SEPQ low risk
At the time of the interview, SEPQ carried an advertised distribution yield of around 10% to 11%, according to Molchan. While the fund lagged the Nasdaq-100 by about 3% over the past three years, it was outperforming the index year-to-date, he added. That performance split underscores the core trade-off: Investors can collect steady cash flow, even if it means leaving some gains on the table when tech stocks rally.
The strategy still holds significant equity-market risk. Molchan noted that investors should expect roughly one calendar month each year to bring a 10% drawdown from a recent high. His argument is that collecting cash flow while staying invested helps compound returns through such periods. Still, that’s just the fund’s goal, not a guaranteed protection against losses.
Molchan was especially direct about the assumption investors should avoid. A high yield can be funded by option premiums, but those premiums don’t make the underlying stocks less volatile, and a distribution should not be viewed as a guaranteed return.
The biggest misconception about options income ETFs is that the yield is safe.
Jonathan Molchan, when asked about the biggest misconception surrounding options-income ETFs
For investors who already own an S&P 500 fund, Molchan distinguishes SEPQ from the fund’s Shelton Equity Premium Income ETF (SEPI), which has a value tilt and uses single-stock covered calls. SEPI was launched in 2025, seeking to achieve a high level of income and capital appreciation (when consistent with high income) by investing primarily in income-producing U.S. equity securities. Its top holdings include many of the same stocks in SEPQ.
Molchan said a model investment blend of 60% SEPI and 40% SEPQ can serve as an alternative to a traditional 60/40 stocks and bonds portfolio. Still, that is a product-specific pitch — one whose return and income goals should be weighed against an individual investor’s needs for liquidity, growth, and risk management.
The takeaway for investors considering options-income ETFs
Start by deciding what role you need your portfolio to play: long-term tech growth, monthly cash flow, or a mix of both — and keep those objectives distinct. An options-income fund can make sense if you accept the trade-offs, namely reduced upside and exposure to stock-market drawdowns.
From there, examine the fund’s total return, its stock exposure, and where its distribution originates. If your goal is capturing the full upside of a tech rally, an income-focused strategy will likely fall short. If steady distributions are a higher priority, make sure you understand the underlying risks that drive them.
Sources
Jonathan Molchan on TheStreet’s ETF Spotlight · watch the full segment
Cited segments:
- SEPQ can be positioned at 100% stocks, 50% stocks, or 10% stocks, and Molchan said a further 10% decline would put it fully risk-off. (6:28–7:25)
- SEPQ uses a call spread rather than a covered call. (4:49–6:26)
- Molchan said SEPQ had an advertised distribution yield of roughly 10% to 11%, lagged the Nasdaq by about 3% over three years, and was outperforming year-to-date. (7:27–9:02)
- Molchan said investors should expect about one month in every calendar year with a 10% drawdown. (6:05–6:44)
- Molchan said the biggest misconception about options-income ETFs is that the yield is safe. (22:11–22:21)
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