Covered Call Strategy ETFs
The CBOE NASDAQ-100 BuyWrite Index (BXN) is the basis of the Recon Capital NASDAQ-100 Covered Call ETF (QYLD), which launched in December 2013. This exchange-traded fund (ETF) is the latest addition to a small, recent wave of covered-call ETFs and NASDAQ’s third in this category.
The CBOE NASDAQ-100 BuyWrite Index (BXN) measures the total return of a portfolio consisting of common stocks of the 100 companies included in the NASDAQ-100 Index and call options systematically written on those securities through a “buy-write” (or covered call) strategy. A “buy-write” strategy is an investment strategy in which the Fund buys a specific basket of stocks (such as the NASDAQ-100® Index) and sells covered call options that correspond to that basket of stocks.
“This type of product is growing more and more in popularity as investors seek ways to get an extra boost of income during this uncertain time in the market,” said Dave Gedeon, Managing Director, NASDAQ OMX Global Indexes.
“Covered calls are proliferating as they offer lower market volatility, produce income, are less expensive, and provide more liquidity than options alone. They also provide market participation in flat to slightly up/down markets making them a superior investment strategy.”
In 2013, NASDAQ launched the Credit Suisse NASDAQ Silver FLOWS 106 Index ER (QSLV) and the Credit Suisse NASDAQ Gold FLOWS103 Price Index (QGLDI).
“The buywrite strategy is the quintessential low-vol strategy where you’re buying the index and riding a call against that,” said Robert Hughes, Vice President, NASDAQ OMX Global Indexes. “Advisors today are looking at traditional low volatility, income-producing strategies, options strategies, such as covered calls/buywrites. Now NASDAQ is providing this all in one ETF. It’s much easier for FAs to sell that to a client than to have to explain how to buy/sell options, plus there’s much more liquidity in this type of strategy.”