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Are Equity Index Covered Call ETFs Working?

May 19, 2021 • 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 (PBP) – seeks to track the CBOE S&P 500 BuyWrite Index (BXM).
  2. Global X S&P 500 Covered Call (XYLD) – seeks to track BXM.
  3. Global X NASDAQ 100 Covered Call (QYLD) – seeks to track the CBOE Nasdaq-100 BuyWrite V2 Index (BXNT). We use CBOE NASDAQ-100 BuyWrite Index (BXN) based on availability of historical data.
  4. First Trust BuyWrite Income (FTHI) – holds U.S. stocks of all market capitalizations and sells at-the-money to slightly out-of-the-money covered calls on the S&P 500 Index up to 20% of fund assets, 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, compound annual growth rate (CAGR) and maximum drawdown (MaxDD) based on monthly data. We consider SPDR S&P 500 (SPY) and Invesco QQQ Trust (QQQ) as underlying stock index proxies. Using monthly dividend-adjusted returns for the four covered call ETFs since inceptions and for all benchmarks/underlying index proxies through April 2021, we find that: (more…)

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