David Nicholas

David Nicholas spent over 20 years as a financial advisor before launching Nicholas X Funds, building ETFs from the same options-driven strategies he used for private wealth clients. The idea started during COVID when clients kept asking for treasury exposure and Nicholas realized he could recreate what insurance companies do with their balance sheets, but in a liquid ETF wrapper. His first fund, FIX, attracted big institutional investors including a couple of foreign governments. His crypto fund BLKX (Blocks) blew past $200 million. Now he's scaling fast, going from three funds to nine, pouring revenue from existing products right back into new launches.

On this episode of Behind the Ticker, David walks Brad through the options engine that powers his entire product suite, the new silver and gold income ETFs, and why he's betting everything on this next wave of growth.

The Options Engine Under the Hood

The common thread across every X Funds product is a core asset paired with a defined-risk options overlay. But these aren't cookie-cutter covered call strategies. Nicholas is pretty blunt about why: covered call ETFs have rarely ever beaten the underlying. When the market rips higher, a short call caps your upside and you miss the move.

His solution is to lean heavily on short put spreads on equity positions where the team has high conviction. In a rising market, the equities go up, the put premium gets collected, and nothing caps the upside. The tradeoff is more downside exposure when things go south, because you're losing on both the puts and the equity positions. But Nicholas argues that if you believe markets go up over time, put spread strategies will outperform call strategies over any reasonable horizon because you're never leaving gains on the table.

FIX, the fixed income and annuity product, works differently. It holds treasuries as a base, then sells short spreads on HYG (the junk bond ETF) to harvest yield. All of that income goes into buying long index call options. If the S&P is negative over the option's term, the only thing at risk is the income from the HY spread. On top of that, there are monthly opportunistic sector trades, typically risking about half a percent each. Nicholas gave a live example: they were short XLP (consumer staples, which was overbought by RSI) and long XLU and XLF. The math is straightforward: treasuries yield 4%, and they only need 30 basis points per month of additional return to hit their target. That's 3.5% extra over 12 months, putting the total yield in the 7.5 to 8% range above treasuries.

SLVX: The Silver Income Play

The Nicholas Silver Income ETF (SLVX) splits roughly 50/50 between silver mining equities and actual silver spot exposure through ETFs like SLV, SIVR, and PSLV. Nicholas sees silver as a dual-demand metal: it acts as a monetary hedge like gold, but it's also an industrial input, which gives it a different demand profile.

The options overlay works differently on each sleeve. On the equity side (names like First Majestic, Pan American, Wheaton, Silver Corp, Fortuna), they sell put spreads at or below the money. If the stocks go up, they keep the full premium and capture all the upside. On the silver ETF side, they sell call spreads but also buy a long call above the spread. So if silver rips, they miss a small gap in the middle of the spread but capture everything above their long strike. The gold fund GLDX uses the exact same structure, just swapping gold companies and gold ETFs for the silver equivalents.

None of these funds track an index. They're fully active. The options strategy is actively managed, with the ability to switch from calls to puts, add or remove hedges, and adjust positions based on market conditions. Nicholas emphasized this is driven by the trade desk and management team, not a set-it-and-forget-it algorithm.

The NAV Decline Question

Nicholas addressed the criticism that option overlay income can mask NAV decline head-on. His distinction is important: there are two types of NAV decline. One is from overdistributing relative to what the fund earns. The other is the underlying assets going down in value. He's fine with the second kind and allergic to the first.

In Blocks, the options positions actually generate closer to 50% yield, but they distribute only 36%. They could declare 40 or 50% like some competitors, but that would drive NAV decline from overdistribution. At 36%, they have about an 80% success rate on their trades, which nets out to the distribution being sustainable. Since inception, Bitcoin has dropped roughly 20 to 30%, yet Blocks is roughly flat over the same period, meaning the strategy has meaningfully outperformed the underlying asset.

Crawl, Walk, Run

Nicholas is refreshingly honest about the business side. He's taking all the revenue from existing funds and pouring it back into the six new launches. He described his biggest challenge as marketing ETFs compliantly. You can have the best performance in your category, but if no one knows about the fund, it's an expensive business to run. The compliance "no stamp" finds its way onto plenty of marketing ideas.

Scaling means replacing himself. The first three funds had his fingerprints on everything from construction to design to marketing. Now it's about bringing on people who are smarter than him in specific areas to push beyond what his personal ceiling allows.

Key Takeaways

• X Funds uses put spread strategies rather than covered calls on equity sleeves, preserving full upside participation while generating income. The tradeoff is more downside exposure in falling markets.
• SLVX splits 50/50 between silver miners and silver spot exposure (via SLV, SIVR, PSLV), with different options strategies on each sleeve: put spreads on equities, call spreads plus long calls on the commodity side.
• Blocks generates about 50% yield from options but distributes only 36%, targeting an 80% success rate on trades and avoiding NAV erosion from overdistribution.
• FIX needs only 30 basis points per month of additional return from opportunistic trades to hit its 7.5 to 8% total yield target above treasuries.
• Nicholas is reinvesting all fund revenue into new launches, scaling from three to nine funds in a single year.

Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.