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Are Equity Index Covered Call ETFs Working?

Posted in Equity Options

Is systematically selling covered call options on equity indexes, as implemented by exchange-traded funds (ETF), attractive? To investigate, we consider four equity covered call ETFs:

  1. Invesco S&P 500 BuyWrite ETF (PBP) - seeks to track the CBOE S&P 500 BuyWrite Index (BXM).
  2. Global X S&P 500 Covered Call ETF (HSPX) - seeks to track the CBOE S&P 500 2% OTM BuyWrite Index (BXY).
  3. Global X NASDAQ 100 Covered Call ETF (QYLD) - seeks to track the CBOE NASDAQ-100 BuyWrite Index (BXN).
  4. First Trust BuyWrite Income ETF (FTHI) - sells at-the-money to slightly out-of-the-money covered calls on the S&P 500 Index, laddered with expirations of less than one year (we use BXM as a benchmark).

We focus on average monthly return, standard deviation of monthly returns, sample period cumulative return and maximum drawdown (MaxDD) based on monthly data. We consider SPDR S&P 500 (SPY) and Invesco QQQ Trust (QQQ) as underlying stock indexes. Using monthly dividend-adjusted returns for the four covered call ETFs since inceptions and for all benchmarks/underlying indexes through June 2019, we find that:

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