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Covered Call ETFs to Earn Higher Income & Stave Off Volatility
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Key Takeaways
Covered call ETFs offer income from option premiums, which can partially cushion losses in a falling market.
TSPY, QYLD, XYLD, QDTE and JEPI offer varying income strategies, yields and expense ratios.
A covered call strategy is an investing technique that saves one from market selloffs to quite an extent. The strategy involves holding a long position in a stock and selling call options on it to generate additional income. During a selloff, while the primary stock position loses value as its price falls, the premium from call options can partially cushion it.
This strategy offers two benefits. The first is income generation, which implies premiums from selling options, and the second is downside protection, in which the premiums provide a small protection from potential losses in the stock.
Historically, covered call strategies have outperformed their underlying securities in bear, range-bound, and moderate bull markets but lag during strong bull rallies when securities frequently and sharply exceed their strike prices.
Why Invest in Covered Call Strategy Now?
Wall Street has been experiencing extreme volatility lately due to rising oil prices, surging bond yields and swelling debt in the tech sector. Investors are concerned about the timely payoff from the massive investments being made in the artificial intelligence (AI) sector. Let’s delve a little deeper.
Oil Crosses $100 as Geopolitical Risks Rise
Oil prices jumped amid reports that the United States and Israel were considering renewed attacks on Iran. WTI crude rose to $103.27 per barrel last week, while Brent crude was up to $116.72, its highest settlement since April, as mentioned on CNBC.
Higher energy costs could fuel inflation and increase pressure on businesses and consumers. Rising diesel prices are already squeezing discount retailers' profit margins, with analysts warning that the impact could persist into 2027.
Wall Street Slid Last Week as Oil Prices Surged
U.S. stocks fell last week, as rising oil prices and renewed fears of an escalation in the U.S.-Iran conflict weighed on investor sentiment. The sell-off spread beyond technology stocks, hitting even defensive sectors such as consumer staples, utilities and healthcare.
Bond Yields and AI Concerns Add to Market Pressure
The 10-year Treasury yield climbed to around 5%, reviving concerns about borrowing costs and the massive debt financing used to build AI data centers. Investors have also been reassessing technology valuations amid rising rates and heavy corporate borrowing.
As a result, investing in a covered call strategy could be beneficial now. Below, we have highlighted a few covered-call exchange-traded funds (ETFs) that could be proper investments at the current level.
The ETF TSPY looks to participate in S&P 500 growth via SPY. The ETF sells daily (0DTE) options with the goal of generating high income. It aims to reduce volatility and account for risk with execution. The ETF charges 77 bps in fees and yields 14.23% annually.
The underlying CBOE NASDAQ-100 BuyWrite V2 Index measures the total return of a portfolio consisting of common stocks of the 100 companies included on the NASDAQ-100 Index and call options systematically written on those securities through a buy-write or covered call strategy. The fund charges 60 bps in fees and yields 11.83% annually.
The underlying Cboe S&P 500 BuyWrite Index seeks to track the performance of a hypothetical buy-write strategy on the S&P 500 Index. The fund charges 60 bps in fees and yields 10.31% annually.
This ETF is active and does not track a benchmark. The fund is the first ETF to utilize zero days to expiry (“0DTE”) options on an innovation index (the "Innovation-100 Index" as defined in the Fund Prospectus). QDTE seeks to provide overnight exposure to the Innovation-100 Index and generates income each morning by selling out-of-the-money 0DTE calls on the Index. The fund charges 95 bps and yields 45.03% annually.
The JPMorgan Equity Premium Income ETF seeks current income while maintaining prospects for capital appreciation. The fund charges 35 bps in fees and yields 8.03% annually.
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Covered Call ETFs to Earn Higher Income & Stave Off Volatility
Key Takeaways
A covered call strategy is an investing technique that saves one from market selloffs to quite an extent. The strategy involves holding a long position in a stock and selling call options on it to generate additional income. During a selloff, while the primary stock position loses value as its price falls, the premium from call options can partially cushion it.
This strategy offers two benefits. The first is income generation, which implies premiums from selling options, and the second is downside protection, in which the premiums provide a small protection from potential losses in the stock.
Historically, covered call strategies have outperformed their underlying securities in bear, range-bound, and moderate bull markets but lag during strong bull rallies when securities frequently and sharply exceed their strike prices.
Why Invest in Covered Call Strategy Now?
Wall Street has been experiencing extreme volatility lately due to rising oil prices, surging bond yields and swelling debt in the tech sector. Investors are concerned about the timely payoff from the massive investments being made in the artificial intelligence (AI) sector. Let’s delve a little deeper.
Oil Crosses $100 as Geopolitical Risks Rise
Oil prices jumped amid reports that the United States and Israel were considering renewed attacks on Iran. WTI crude rose to $103.27 per barrel last week, while Brent crude was up to $116.72, its highest settlement since April, as mentioned on CNBC.
Higher energy costs could fuel inflation and increase pressure on businesses and consumers. Rising diesel prices are already squeezing discount retailers' profit margins, with analysts warning that the impact could persist into 2027.
Wall Street Slid Last Week as Oil Prices Surged
U.S. stocks fell last week, as rising oil prices and renewed fears of an escalation in the U.S.-Iran conflict weighed on investor sentiment. The sell-off spread beyond technology stocks, hitting even defensive sectors such as consumer staples, utilities and healthcare.
Bond Yields and AI Concerns Add to Market Pressure
The 10-year Treasury yield climbed to around 5%, reviving concerns about borrowing costs and the massive debt financing used to build AI data centers. Investors have also been reassessing technology valuations amid rising rates and heavy corporate borrowing.
As a result, investing in a covered call strategy could be beneficial now. Below, we have highlighted a few covered-call exchange-traded funds (ETFs) that could be proper investments at the current level.
Covered Call ETFs in Focus
TappAlpha SPY Growth & Daily Income ETF (TSPY - Free Report)
The ETF TSPY looks to participate in S&P 500 growth via SPY. The ETF sells daily (0DTE) options with the goal of generating high income. It aims to reduce volatility and account for risk with execution. The ETF charges 77 bps in fees and yields 14.23% annually.
Global X Nasdaq 100 Covered Call ETF (QYLD - Free Report)
The underlying CBOE NASDAQ-100 BuyWrite V2 Index measures the total return of a portfolio consisting of common stocks of the 100 companies included on the NASDAQ-100 Index and call options systematically written on those securities through a buy-write or covered call strategy. The fund charges 60 bps in fees and yields 11.83% annually.
S&P 500 Covered Call ETF (XYLD - Free Report)
The underlying Cboe S&P 500 BuyWrite Index seeks to track the performance of a hypothetical buy-write strategy on the S&P 500 Index. The fund charges 60 bps in fees and yields 10.31% annually.
Roundhill N-100 0DTE Covered Call Strategy ETF (QDTE - Free Report)
This ETF is active and does not track a benchmark. The fund is the first ETF to utilize zero days to expiry (“0DTE”) options on an innovation index (the "Innovation-100 Index" as defined in the Fund Prospectus). QDTE seeks to provide overnight exposure to the Innovation-100 Index and generates income each morning by selling out-of-the-money 0DTE calls on the Index. The fund charges 95 bps and yields 45.03% annually.
JPMorgan Equity Premium Income ETF (JEPI - Free Report)
The JPMorgan Equity Premium Income ETF seeks current income while maintaining prospects for capital appreciation. The fund charges 35 bps in fees and yields 8.03% annually.