3 ETFs For Covered Call Exposure and Monthly Income

With the markets weighed down heavily with volatility, it’s a challenge for fixed income investors to get stable and adequate yield. That said, they may want to consider a fund that uses a covered call strategy that the Global X S&P 500 Covered Call ETF (XYLD) employs.

It’s difficult to overlook with a distribution yield of 13.29% and a 12-month trailing yield of 10.37%. Furthermore, it provides monthly distributions and has been for more than eight years.

XYLD seeks investment results that generally correspond to the performance of the CBOE S&P 500 BuyWrite Index. The underlying index measures the performance of a hypothetical portfolio that employs a covered call strategy. A covered call strategy is generally considered an investment strategy in which an investor buys security and sells (or “writes”) a call option on that security in an attempt to generate more income.

As mentioned, XYLD essentially follows a covered call or buy-write strategy. Essentially, the fund buys exposure to the stocks in the S&P 500 and writes or sells corresponding call options on the same index.

  • High Income Potential: XYLD seeks to generate income through covered call writing, which historically produces higher yields in periods of volatility.
  • Monthly Distributions: XYLD has made monthly distributions for more than eight years running.
  • Efficient Options Execution: XYLD writes call options on the S&P 500 Index, saving investors the time and potential expense of doing so individually.

The Nasdaq 100 and the Russell 2000

The strategy isn’t relegated to large-cap equities in the S&P 500. It also spills over to the big tech names in the Nasdaq 100 using the  Global X Nasdaq 100 Covered Call ETF (QYLD). The fund seeks to provide investment results that generally correspond to the price and yield performance of the CBOE Nasdaq-100 BuyWrite V2 Index.

Large caps aren’t the only option. Small caps can also utilize the Russell 2000 Covered Call ETF (RYLD) strategy, which seeks to provide investment results that generally correspond to the Cboe Russell 2000 BuyWrite Index.

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