The tech-heavy Nasdaq-100 Index is once again trouncing the S&P 500 this year, but yields on both benchmarks are low. Investors can amplify the Nasdaq-100 income proposition with the Global X Nasdaq 100 Covered Call ETF (NasdaqGM: QYLD).
QYLD is an income-generating spin on the Nasdaq-100 Index (NDX), an index lightly allocated dividend-offending sectors, such as energy and real estate while heavily allocated to leaders with strong balance sheets, such as the technology and communication services sectors. QYLD’s income is derived from writing covered calls on the NDX.
A covered call refers to an options strategy where an investor writes or sells a call option on an asset which they already own or bought on a share-for-share basis to generate income via premiums derived from the sale of the call options.
QYLD incorporates options exposure to help generate income and mitigate risk as a way to enhance total returns. Investors have long capitalized on covered call options strategies for income generation. The fund has a trailing 12-month yield north of 11%.
QYLD Query
Covered call strategies can potentially augment a portfolio during periods of heightened volatility. The covered-call options allow an investor to hold a long position in an asset while simultaneously writing, or selling, call options on the same asset.
The recent market swings show that the aging bull market rally is susceptible to sudden extreme bouts of volatility. Nevertheless, investors who are worried about further risks may turn to alternative strategies that exhibit lower correlations to traditional assets. This includes ETFs that track buy-write or covered call strategies to generate attractive yields if markets continue to slowdown in the year ahead.
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.
While these buy-write ETFs may not produce any phenomenal returns compared to the broader equities markets, their underlying options strategy helps them generate outsized yields.
Data suggest QYLD is becoming a fan favorite among income investors as the Global X fund has north of $1.2 billion in assets under management. Plus, QYLD pays a monthly dividend, something the fund has done every month for more than seven consecutive years.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.