{"id":33837,"date":"2026-02-22T07:48:10","date_gmt":"2026-02-22T07:48:10","guid":{"rendered":"https:\/\/diyhaven858.wasmer.app\/index.php\/the-best-way-to-play-covered-call-etfs-right-now\/"},"modified":"2026-02-22T07:48:10","modified_gmt":"2026-02-22T07:48:10","slug":"the-best-way-to-play-covered-call-etfs-right-now","status":"publish","type":"post","link":"https:\/\/diyhaven858.wasmer.app\/index.php\/the-best-way-to-play-covered-call-etfs-right-now\/","title":{"rendered":"The Best Way To Play Covered Call ETFs Right Now"},"content":{"rendered":"
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Covered call exchange-traded funds (ETFs) are all the rage. And as I\u2019ve said here, there, and everywhere \u2014 I don\u2019t get it. It is not that I\u2019m anti-income. Just the opposite, in fact. But these ETFs do not typically add to return, and they don\u2019t remove much risk of major loss. Historically, most of them get about 80% to 95% of the upside of the underlying ETF or stock index basket. And roughly the same portion of the downside.<\/p>\n
In other words, take an ETF that writes covered calls on the S&P 500 Index ($SPX) or Nasdaq 100 ($IUXX). If you look at the returns over time for those ETFs, they will likely track those indexes up and down. Most of their value to investors is to convert gains in that index into monthly cash flow.<\/p>\n
But what about when the underlying index doesn\u2019t go up? Not just for a little while, but for years? Oops.<\/p>\n
What happens to the covered call ETF? It keeps paying you a decent income. That\u2019s the part you see hit your account each month. But if you also look at your account holding that ETF, guess what? It is down. Way down.<\/p>\n
This table shows the Nasdaq QQQ Invesco ETF (QQQ) and the GX Nasdaq-100 Covered Call ETF (QYLD). QQQ, you likely know well. It is approaching $400 billion in assets. QYLD is no slouch, at more than $8 billion, making it the largest covered call ETF tied to an index. JPM Equity Premium Income ETF (JEPI) is the biggest in that peer group, but its stock selection is done actively.<\/p>\n
QQQ yields next to nothing, but QYLD yields more than 11%. And over the past 12 months, that yield has served to offset a decline in QYLD\u2019s price. Because funding the income distribution is done by writing covered calls on the Nasdaq 100, a process that sacrifices upside potential for option income now.<\/p>\n\n
In round numbers, over the past 12 months, QQQ has made 12%. QYLD has made about 6%, which is the yield minus the \u201cprincipal drag\u201d from forsaking most of the upside in order to spin off monthly cash flow, funded by option premiums.<\/p>\n
Most covered call ETFs work similarly. And here\u2019s where I think the disconnect is: When the underlying, QQQ in this case, goes up nicely, no one notices the mechanics. But what about when QQQ goes down, and not just for a month or two?<\/p>\n<\/p><\/div>\n