Covered call writing is a method for generating additional income from a stock portfolio beyond what would otherwise be provided on its own from dividends or other distributions. It has also been used to enhance a portfolio’s yield while reducing volatility. [Covered Call ETFs Boost and Diversify Income Portfolios]
“The Fund’s covered call options are expected to partially protect the Fund from a decline in the price of the NASDAQ-100 Index through means of the premiums received by the Fund,” according to the filing.
The covered call strategy has outperformed during bear markets, range-bound markets and slightly bullish conditions. However, during strong bull rallies, the covered call strategy has historically fallen behind as the underlying securities would surge through their strike prices.
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Max Chen contributed to this article.