A little unknown exchange traded fund that follows a covered call strategy has generated robust dividend yields over its first year.

The Recon Capital NASDAQ-100 Covered Call ETF (NasdaqGM: QYLD), which began trading on December 12, 2013, has provided a distribution yield of 10.4% in 2014, according to a press release.

QYLD provides a covered-call strategy that targets Nasdaq-100 securities. Additionally, for those who rely on regular income payments, the ETF provides monthly distributions.

The covered-call options strategy allows an investor to hold a long position in an asset while simultaneously writing, or selling, call options on the same asset. Traders would typically employ a covered-call strategy when they have a neutral view of the markets over the short-term and just bank on income generation from the option premium. [ETF Chart of the Day: Call Coverage]

In a flat market condition, the trader would use the buy-write strategy to generate a premium on the option. If shares fall, the option expires worthless and one still keeps the premiums on the options. However, the strategy can cap the upside of a potential rally – the trader keeps the premium generated but any gains beyond the strike price will not be realized.

During last year’s rally, QYLD underperformed the broader market, rising 3.6% over the past year. Nevertheless, the ETF somewhat made up the difference through its robust income generation on option premiums.

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