Joseph Cunningham, executive VP and head of capital markets at Horizons ETFs, points out that these type of covered call strategies can potentially outperform buy-and-hold, long equity positions during bearish, rangebound and slow bullish market environments. Additionally, the strategy may outperform during periods of volatility.
“Covered call premiums historically rise during rising volatility,” Cunningham said. “As a result, a covered call strategy may potentially harvest more option premium during a market with rising volatility.”
However, potential investors should be aware that the covered call strategies can lag during strong bull rallies.
Looking at the relative strength of the covered call ETFs, HSPX currently shows a 60.8 reading with a 14-day look-back period – readings above 70 are typically considered overbought while readings below 30 reflect oversold conditions. HFIN, though, has a RSI of 76.5, according to StockCharts.
Horizons S&P 500 Covered Call ETF
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