Why use a covered call ETF?
While investors can manually write calls on their underlying stock holdings, those unfamiliar with the use of derivatives can find this approach costly and time-consuming.
When determining the optimal strike price and expiry date, consider option volatility, time to expiry and moneyness of option. If a call goes in-the-money, investors must decide whether to wait until expiry, roll the expiry date out further, or roll the strike price up higher.
An easier, hands-off solution is using an ETF that implements a covered call overlay. In this case, the fund manager is responsible for writing and managing a portfolio of equities with covered calls sold on a portion of the holdings.
Investors who buy shares of this ETF pay a management expense ratio (MER) for exposure. In return, they received the capital appreciation from the underlying shares and distributions from the covered calls.
Our covered call ETFs write monthly at-the-money call options on 25% of their underlying holdings, which consists of equally weighted stocks in different market sectors.
