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There are 45 ETFs that use option trading as an investment strategy.
| Strategy | Count |
|---|---|
| Broad | 23 |
| Covered calls | 17 |
| Puts | 5 |
| Total | 45 |
The "broad" strategy means that the ETF can or is using both put writing and covered calls.
Covered calls
A “covered call” is an income-producing strategy where you sell, or “write”, call options against shares of stock you already own. Typically, you’ll sell one contract for every 100 shares of stock. In exchange for selling the call options, you collect an option premium. But that premium comes with an obligation. If the call option you sold is exercised by the buyer, you may be obligated to deliver your shares of the underlying stock. Fortunately, you already own the underlying stock, so your potential obligation is “covered” – hence this strategy’s name, “covered call” writing.
Here are the ETFs that use covered call writing as a strategy, if you want to read some examples of the approaches taken by these ETFs:
| Symbol | Description | Inception Date | Current Dividend Yield |
|---|---|---|---|
| PBP | Invesco S&P 500 BuyWrite Portfolio ETF | 12/20/2007 | 0.94% |
| VEGA | AdvisorShares STAR Global Buy-Write ETF | 09/17/2012 | 1.81% |
| GLDI | Gold Covered Call Option ETN | 01/29/2013 | 7.81% |
| SLVO | Silver Covered Call Option ETN | 04/17/2013 | 9.59% |
| XYLD | Global X S&P 500 Covered Call ETF | 06/21/2013 | 11.64% |
| QYLD | Horizons NASDAQ 100 Covered Call ETF | 12/11/2013 | 11.54% |
| FTHI | First Trust BuyWrite Income ETF | 01/06/2014 | 8.86% |
| DIVO | Amplify Yieldshares CWP Dividend Option Income ETF | 12/13/2016 | 4.66% |
| USOI | X-Links Crude Oil Shares Covered Call ETN | 04/26/2017 | 12.57% |
| KNG | Cboe Vest S&P 500 Dividend Aristocrats Target Income ETF | 03/27/2018 | 4.15% |
| RYLD | Global X Russell 2000 Covered Call ETF | 04/22/2019 | 11.62% |
| ACIO | Aptus Collared Income Opportunity ETF | 07/10/2019 | 1.30% |
| SIXH | 6 Meridian Hedged Equity-Index Option Strategy ETF | 05/11/2020 | 2.35% |
| QYLG | Global X Nasdaq 100 Covered Call & Growth ETF | 09/21/2020 | 4.73% |
| XYLG | Global X S&P 500 Covered Call & Growth ETF | 09/21/2020 | 4.54% |
| XRMI | Global X S&P 500 Risk Managed Income ETF | 08/26/2021 | 11.55% |
| DJIA | Global X Dow 30 Covered Call ETF | 02/24/2022 | 9.17% |
ETFs that are using a covered call strategy often have a high dividend yield, because of the income generated through selling the call options. But the income isn't "real", because you earn the dividend income at the expense of the ETF not tracking the underlying asset. So to properly analyze a covered call ETF, you have to look at the total return of the ETF, not just the market price.
Let's look at an example. GLDI, the X-Links Gold Shares Covered Call ETN, tracks QGLDI, the Credit Suisse NASDAQ Gold FLOWS (Formula-Linked OverWrite Strategy) 103 Index (the “Index”). The Index seeks to implement a “covered call” investment strategy by maintaining a notional long position in shares of GLD, the SPDR Gold Trust ETF while notionally selling monthly out-of-the-money call options on that position. GLDI has a really high dividend yield, but the market price of GLDI has significantly trailed the market price of GLD, the SPDR Gold Trust ETF:
Even though GLDI has a high dividend yield, if you look at GLDI's total return index (QGLDITR), you can see that the high dividend yield didn't really help your overall return, as you would have been just as well off owning GLD, the SPDR Gold Trust:
Cash secured put writing
An investor who employs a cash-secured put writes a put contract, and at the same time deposits in his brokerage account the full cash amount for a possible purchase of underlying shares. The purpose of depositing this cash is to ensure that it's available should the investor be assigned on the short put position and be obligated to purchase shares at the put's strike price. While the cash is on deposit it may generally be invested in short-term, interest-bearing instruments.
When an investor writes or sales a put contract, the investor agrees to buy a stock during a specified period of time at a fixed price, called a strike price. The strike price is below the stock's current market price, so the investor writing a put contract is telling the buyer of the put: "if this stock drops in value, I will buy it from you, and I will pay X dollars for it". Regardless of the direction the stock price takes after the put is sold, or whether assignment is received or not, the put seller keeps the premium.
On the downside, the break-even point for this strategy is an underlying stock price equal to the put's strike price less the premium received for selling it. If the stock declines significantly below the strike price by expiration, on assignment the investor may be obligated to purchase shares well above their current price level. Stock bought under this circumstance may therefore reflect a loss compared to its market price at the time. However, this loss would be unrealized as long as the investor holds the shares and is positioned to profit from an increase in their price. Any investor whose motivation in writing a cash-secured put is to buy underlying stock should therefore be committed in advance to a target price for a possible purchase, and select a strike price accordingly.
On the upside the risk is one of opportunity loss. After selling the put the underlying stock price can go up and remain above the put's strike price. In this case, neither a put seller who is not assigned, nor an investor who originally entered a low limit order for the stock instead, will buy the stock. The put seller, however, keeps the put sale premium received.
Here are the ETFs that use put writing as a strategy, if you want to read some examples of the approaches taken by these ETFs:
| Symbol | Description | Inception Date | Category |
|---|---|---|---|
| PUTW | WisdomTree CBOE S&P 500 PutWrite Strategy ETF | 02/24/2016 | Alternatives |
| TAIL | Cambria Tail Risk ETF | 04/07/2017 | Alternatives |
| QQD | Simplify Growth Equity Plus Downside Convexity ETF | 12/11/2020 | Alternatives |
| FAIL | Cambria Global Tail Risk ETF | 03/15/2021 | Alternatives |
| XTR | Global X S&P 500 Tail Risk ETF | 08/26/2021 | Alternatives |
ETFs that use both strategies
Here are the ETFs that use both put writing and covered call writing as a strategy, if you want to read some examples of the approaches taken by these ETFs:
| Symbol | Description | Inception Date | Category |
|---|---|---|---|
| CCOR | Core Alternative ETF | 05/24/2017 | Alternatives |
| SWAN | Amplify BlackSwan Growth & Treasury Core ETF | 11/06/2018 | Alternatives |
| NUSI | Nationwide Risk-Managed Income ETF | 12/20/2019 | Alternatives |
| JEPI | JPMorgan Equity Premium Income ETF | 05/21/2020 | Alternatives |
| SPD | Simplify US Equity PLUS Downside Convexity ETF | 09/04/2020 | Alternatives |
| SPUC | Simplify US Equity PLUS Upside Convexity ETF | 09/04/2020 | Alternatives |
| SPYC | Simplify US Equity PLUS Convexity ETF | 09/04/2020 | Alternatives |
| QQC | Simplify Growth Equity Plus Convexity ETF | 12/11/2020 | Alternatives |
| HEGD | Swan Hedged Equity US Large Cap ETF | 12/23/2020 | Alternatives |
| OVLH | Overlay Shares Hedged Large Cap Equity ETF | 01/15/2021 | Alternatives |
| ISWN | Amplify BlackSwan ISWN ETF | 01/26/2021 | Alternatives |
| ZHDG | ZEGA Buy and Hedge ETF | 07/07/2021 | Alternatives |
| VSPY | VectorShares Min Vol ETF | 07/20/2021 | Alternatives |
| IDME | Aptus International Drawdown Managed Equity ETF | 07/23/2021 | Alternatives |
| XCLR | Global X S&P 500 Collar 95-110 ETF | 08/26/2021 | Alternatives |
| CYA | Simplify Tail Risk Strategy ETF | 09/14/2021 | Alternatives |
| BNDD | Quadratic Deflation ETF | 09/21/2021 | Alternatives |
| GTR | WisdomTree Target Range ETF | 10/06/2021 | Alternatives |
| GLDX | USCF Gold Strategy Plus Income Fund ETF | 11/03/2021 | Alternatives |
| QSWN | Amplify BlackSwan Tech & Treasury ETF | 12/09/2021 | Alternatives |
| NDJI | Nationwide Dow Jones Risk-Managed Income ETF | 12/17/2021 | Alternatives |
| NSPI | Nationwide S&P 500 Risk-Managed Income ETF | 12/17/2021 | Alternatives |
| NTKI | ETF Series Solutions Nationwide Russell 2000 Risk-Managed Income ETF | 12/17/2021 | Alternatives |
PUTW is an editor's choice
We have given PUTW a rating of editor's choice, our highest rating. There are times when PUTW outperforms the S&P 500 Index on a total return basis. More importantly, PUTW has a very low standard deviation of returns, meaning that on a risk-adjusted basis, PUTW often outperforms the S&P 500 Index.
Here is the theoretical, back-test data for PUT (the index that PUTW tracks) compared to the S&P 500 total return index:
All data is a live query from our database. The wording was last updated: 11/04/2018.
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