How to Enhance Income Potential with Covered Call ETFs, The Hongkong and Shanghai Banking Corporation Limited, Sydney Branch, Computershare Investor Services Pty Limited. I'm not a big fan of social media, but you can find me on LinkedIn and Reddit. !function(e,a,t){var n,r,o,i=a.createElement("canvas"),p=i.getContext&&i.getContext("2d");function s(e,t){var a=String.fromCharCode,e=(p.clearRect(0,0,i.width,i.height),p.fillText(a.apply(this,e),0,0),i.toDataURL());return p.clearRect(0,0,i.width,i.height),p.fillText(a.apply(this,t),0,0),e===i.toDataURL()}function c(e){var t=a.createElement("script");t.src=e,t.defer=t.type="text/javascript",a.getElementsByTagName("head")[0].appendChild(t)}for(o=Array("flag","emoji"),t.supports={everything:!0,everythingExceptFlag:!0},r=0;r>", These cookies will be stored in your browser only with your consent. The promises and benefits touted by these funds and their supporters such as greater Sharpe ratios often dont hold water under the smallest amount of scrutiny, such as their objective inability to outperform the underlying index of their holdings even on a risk-adjusted basis, much less a better diversified portfolio across asset classes like a 60/40. Investors are encouraged to do their own research before choosing investment . You can plan trades anytime. Click here to download the August 2022 Covered Call Report. The tax treatment of your investment in a Covered Call ETF will very depending on jurisdiction. Persons in respect of whom such prohibitions apply should not access these websites. Proponents seem to erroneously believe that covered call ETFs are somehow made safe by their selling options. By subscribing to email updates you can expect thoroughly researched perspectives and market commentary on the trends shaping global markets. JEPI is an income ETF from J.P. Morgan. Email address (will not be published) (required). In fairness, novice investors likely see the extremely attractive, high distribution yields of these funds and dont look much further, and they probably dont understand how covered calls work. Learn everything you need to know about Global X S&P 500 Covered Call ETF (XYLD) and how it ranks compared to other funds. The logic behind selling call options against assets investors already own is that it ensures investors are covered from a margin call perspective hence the term covered call. Covered calls can be written for single stocks or whole indexes, and are a convenient way to reduce volatility while capturing some exposure to equity market gains. Next: Global X S&P 500 Covered Call ETF (ticker: XYLD) 1/10. However, exchange-traded funds give investors of all stripes access to them with covered call ETFs. Once again, thinking of yield as income separate from principal, while it may make you feel better, is just mental accounting with no magical benefits. Australia. By investing in ETF:s, you can get the diversification of an index fund and at the same time have the ability of selling short and buy on margin. Furthermore, options premiums tend to be inversely correlated to dividend yieldswith lower dividend yielding stocks producing higher premiums creating a natural hedge. This means that you should aim to buy QYLD at least two business days before the record date (as ETF trades take two business days to settle) should you wish to receive a distribution. The information on this website is for informational and recreational purposes only. Of course, this also means that the ETF risks losing 3x for each 1x decrease in the price of platinum. A covered call ETF is essentially the same thing as putting together a basket of securities (e.g. The annualized distribution as of August 6 2021 was 5.74%. This allows me to continue producing high-quality, ad-free content on this site and pays for the occasional cup of coffee. A covered call ETF is essentially the same thing as putting together a basket of securities (e.g. Maybe, but probably not. The PowerShares S&P 500 BuyWrite Portfolio ETF (PBP B+) buys an S&P 500 stock index portfolio and writes near-term S&P 500 index covered call options on the third Friday of each month.With an expense ratio of 0.75%, the ETF is the most expensive of the three funds, despite having the lowest dividend yield. Basically, in market downturns, a covered call fund will fall with the market by an amount precisely equal to the markets drawdown minus the income received from the option premium. For instance, QYLD had an August premium of 2.78%. This allows these funds to distribute those premiums to investors in the form of a high monthly yield. This relatively elevated volatility level compared to historical averages led to higher premium levels in the month of August for our covered call funds. The ownership of the fund is divided into shares, but shareholders do not have any legal direct claim to the underlying assets. Covered Calls and ETF. The Spider (SPY) tracks the S&P 500 Index. In some jurisdictions, the income count as dividend payments and receive a more favorable tax treatment than other types of capital gains. Even then, as Ive noted elsewhere and as the backtests above show, there are more efficient, more effective ways to de-risk a portfolio, like bonds. AYLD writes call options on the S&P/ASX 200 Index, saving investors the time and potential expense of doing so individually. It is mandatory to procure user consent prior to running these cookies on your website. Respectively, they track the S&P 500, the Nasdaq 100, and the Russell 2000. Because were looking at total return, we can exclude PBP because its total return is virtually identical to XYLD. Usually, the APs are banks or investment companies. Higher yield. Its index is the CBOE S&P 500 BuyWrite Index. This makes XYLD more diversified than QYLD. Do your own due diligence. DIVO - Amplify CWP Enhanced Dividend Income ETF. Covered calls are an investment strategy where investors buy a stock, or group of stocks, and sell call options on them. Using ProWriter has been great for me to super charge my SMSF, very easy to use and to compare returns from different stocks in doing covered calls. 3. We also know active management tends to perform passive indexing over 10+ year periods. Those holdings are just the straight S&P 500, via the same index as XYLD theCBOE S&P 500 BuyWrite Index. Harvest launched its first ETFs in 2016 and has established itself as one of the top option writing firms in Canada. Stocks. The average expense ratio is 0.71%. The Global X Nasdaq 100 Covered Call ETF (QYLD) follows a covered call or buy-write strategy, in which the fund buys the stocks in the Nasdaq 100 Index and writes or sells corresponding call options on the same index to generate income over and above dividends. Source: PortfolioVisualizer.com. These cookies do not store any personal information. You never miss an option and can plan CALL and PUT trades using ASX derived data. read. Dev.Max DrawdownSharpeQYLD2.86%14.45%-22.74%0.18XYLD4.41%14.98%-23.43%0.28DIVO11.51%15.69%-18.86%0.69KNG9.42%17.66%-23.52%0.53SP5009.97%18.87%-23.95%0.5360/406.30%11.64%-20.62%0.48Data Source: PortfolioVisualizer.com. QYLD is the most popular covered call ETF with nearly $7 billion in assets, which is more than half of the total assets under management of all covered call ETFs combined (about $12 billion). JEPI is a comparatively newer ETF from J.P. Morgan that launched in mid-2020 and has quickly amassed nearly $19 billion in assets. Here are the risk and total return metrics for QYLD, XYLD, RYLD, DIVO, JEPI, KNG, the S&P 500, and a traditional 60/40 portfolio for the period June 2020 through 2022. It is very risky, since you cant know what the market price of the underlying share will be on the day when the holder of the call option can elects to exercise (use) the option. The ETF uses a covered call writing strategy to . The strategy effectively eliminates all potential upside related to the performance of the ETFs equity holdings. Required fields are marked *. If you issue a call option without actually owning the underlying shares (that you promise to sell to the option holder), this is called naked selling or naked-call. Equity Research | Canadian Investment Information - Stocktrades Don't subscribeAllReplies to my comments Notify me of followup comments via e-mail. I wrote a separate comprehensive post on QYLD here. We and our partners use cookies to Store and/or access information on a device.

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