Covered call exchange-traded funds (ETFs) trade upside price appreciation for above-average income, often yielding far more than traditional dividend ETFs.
Their appeal became especially clear after the 2022 bear market, when elevated volatility boosted payouts and helped these funds outperform broader equity benchmarks.
But this isn't a free lunch. Covered call ETFs come with higher fees, trade-offs, and added complexity, so it's worth understanding how they work before investing.
Best covered call ETFs to consider
Not all covered call ETFs are built the same. Some follow strict indexes; others are actively managed. Some prioritize income above all else; others try to balance yield with growth potential. For each fund below, we cover historical performance, yield, expense ratio, and what makes it worth considering.
ETF Name and Ticker | Expense Ratio | Distribution Yield |
Global X S&P 500 Covered Call ETF (XYLD) | 0.60% | 11.90% |
Global X Nasdaq 100 Covered Call ETF (QYLD) | 0.60% | 11.86% |
JPMorgan Equity Premium Income ETF (JEPI) | 0.35% | 7.29% |
JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) | 0.35% | 10.80% |
NEOS S&P 500 High Income ETF (SPYI) | 0.68% | 12.24% |
NEOS Nasdaq-100® High Income ETF (QQQI) | 0.68% | 14.32% |
Amplify CWP Enhanced Dividend Income ETF (DIVO) | 0.56% | 4.79% |
1. Global X S&P 500 Covered Call ETF
The Global X S&P 500 Covered Call ETF (XYLD +0.03%) tracks the CBOE S&P 500 BuyWrite index and holds all the stocks in the S&P 500. The 0.60% expense ratio is about average for a fund in this category.
NYSEMKT: XYLD
Key Data Points
NASDAQ: QYLD
Key Data Points
Because the Nasdaq-100 is more volatile, dominated by tech and growth stocks, this ETF collects larger option premiums. But just like the other ETF, its upside is capped. The ATM strike means that gains beyond the call option are forfeited each month.
Over the last 10 years, this ETF has returned 8.94% annualized, with reinvested distributions. The higher yield may appeal to income-focused investors, but the trade-off is limited capital appreciation.
3. JPMorgan Equity Premium Income ETF
The JPMorgan Equity Premium Income ETF (JEPI -0.02%) is the largest covered call ETF on the market, with more than $45 billion in assets under management. Unlike the previous two ETFs discussed here, which follow a strict index approach, this ETF is actively managed and takes a more nuanced approach to generating income.
NYSEMKT: JEPI
Key Data Points
It starts with a portfolio of defensive, low-volatility stocks, aiming to reduce downside risk. But it doesn't write covered calls directly on these stocks. Instead, it allocates about 15% of its portfolio to equity-linked notes (ELNs), which are custom over-the-counter structured products that mimic the return profile of one-month out-of-the-money (OTM) covered calls on the S&P 500.
This approach allows this ETF to collect options premiums while preserving some upside, which helps explain its stronger total returns. Over the last five years, it delivered a 8.38% annualized return.
However, its structure comes with two key drawbacks. First, ELNs are not tax-efficient because they typically generate ordinary income, which is taxed at a higher rate than qualified dividends. Second, because ELNs are over-the-counter contracts, they carry counterparty risk. You're relying on the issuing bank to make good on the payout.
4. JPMorgan Nasdaq Equity Premium Income ETF
The JPMorgan Nasdaq Equity Premium Income ETF (JEPQ +0.12%) is the growth-oriented counterpart to the JPMorgan Equity Premium Income ETF, offering a similar strategy but focusing on the Nasdaq-100. It actively manages a portfolio of primarily Nasdaq-listed stocks, with the flexibility to venture outside the benchmark when opportunities arise.
NASDAQ: JEPQ
Key Data Points
Like the previous ETF, it uses ELNs to implement a one-month OTM covered call strategy on the Nasdaq-100 index. The higher volatility of tech and growth stocks translates to larger premiums. Its expense ratio is 0.35%, matching its relatively low cost for an active strategy.
Although it's a newer fund with limited history, this ETF has shown promise. Over the last three years, it has returned an annualized 19.14%. As with the JPMorgan Equity Premium Income ETF, investors should understand the trade-offs. ELNs carry counterparty risk, and their distributions are tax-inefficient and mostly classified as ordinary income.
5. NEOS S&P 500 High Income ETF
The NEOS S&P 500 High Income ETF (SPYI +0.02%) is a newer entrant in the covered call ETF space, with a unique hybrid approach. It passively holds S&P 500 stocks as its equity base, while actively managing the options overlay by buying and selling S&P 500 index options (SPX).
NYSEMKT: SPYI
Key Data Points
This structure gives this ETF two key tax advantages. First, SPX index options fall under Section 1256 of the tax code, meaning gains are taxed on a 60/40 split -- 60% long-term, 40% short-term -- regardless of the holding period, often resulting in a lower effective tax rate.
Second, because of how the fund manages its options and capital gains, a significant portion of its yield is classified as a return of capital, which is tax-efficient because it reduces your cost basis rather than generating immediate taxable income.
While it carries a slightly higher 0.68% expense ratio, the fund's performance since its August 2022 inception has been strong. It delivered a 12.66% annualized return, outpacing the CBOE S&P 500 BuyWrite Monthly index, which returned 10.32% over the same period.
This ETF may appeal to investors looking for tax-smart high income without giving up entirely on growth potential, as well as to those who are comfortable with a newer fund.
6. NEOS Nasdaq-100 High Income ETF
This covered call ETF passively holds stocks from the Nasdaq-100, allowing for tax-loss-harvesting opportunities, while actively managing an options overlay using NDX index options, which, like SPX, are Section 1256 contracts. Given the Nasdaq-100's higher volatility, the NEOS Nasdaq-100 High Income ETF (QQQI +0.30%) can generate larger option premiums, which explains its elevated yield.
Like the NEOS S&P 500 High Income ETF, a meaningful portion of those distributions is classified as a return of capital, which can help defer taxes by reducing cost basis rather than triggering immediate income tax.
The fund charges a 0.68% expense ratio, and although it's newer -- launched on Jan. 30, 2024 -- it's already showing strong results. Since its inception, it has delivered an annualized return of 15.05%, outperforming the CBOE Nasdaq-100 BuyWrite Monthly Index, which returned 12.74% over the same period.
The fund's managers screen for companies with strong dividends, consistent earnings and cash flow growth, high return on equity, and a solid management track record, spanning most sectors for diversification. Where this ETF stands out is its flexible options overlay. Instead of selling index calls or writing on the entire portfolio, the fund's managers tactically write call options on individual stocks.
They choose the timing, strike prices, and coverage ratios based on market conditions and stock-specific outlooks. This allows for more control over the balance between income and capital appreciation.
As a result, Amplify CWP Enhanced Dividend Income ETF offers a lower yield but superior long-term total returns. Over the past five years, it has returned 11.07% annualized, outperforming the CBOE S&P 500 BuyWrite Index's 7.92% during the same period.
The expense ratio is 0.56%, which is reasonable for an actively managed covered call ETF with selective stock picking and tactical option execution.
Types of covered call ETFs
Covered call ETFs come in several forms. The easiest way to understand them is to think in pairs of design choices. These are not mutually exclusive. Many ETFs combine multiple approaches as long as they are not directly opposed to one another.
- Index-based versus actively managed: Index-based covered call ETFs follow a transparent, rules-driven process. The option writing schedule, strike selection, and coverage ratio are predefined and mechanical. Actively managed covered call ETFs rely on manager discretion, research, and market views to decide when and how aggressively to sell calls. This introduces manager skill risk but can add flexibility.
- Type of options used: Covered call ETFs may write options on individual stocks, broad-market ETFs, or indexes. Some use swaps tied to option-selling indexes, while others rely on equity-linked notes that embed option exposure. Each method affects transparency, tax treatment, and tracking behavior.
What to look for in a covered call ETF
Start with methodology. Review how calls are written, including moneyness (i.e., in-the-money, at-the-money, or out-of-the-money), strike selection, expiration length, and amount of portfolio coverage.
The underlying holdings also matter. Writing calls on volatile assets generates more income but caps upside more aggressively and can introduce more downside risk.
Fees are the next filter. Covered call ETFs typically charge higher fees than plain-vanilla equity ETFs due to options management and operational complexity. Higher fees reduce net income and long-term returns.
Tax efficiency is often overlooked. Distributions may consist of ordinary income, dividends, capital gains, or return of capital. The mix affects after-tax results and can vary significantly between funds.
Finally, evaluate risk-adjusted returns. Covered call ETFs should lag uncapped benchmarks during strong bull markets. A well-constructed ETF should reduce downside volatility and produce a Sharpe ratio that is comparable to, or better than, the underlying benchmark over time.
Should you buy a covered call ETF?
Reasons to consider:
- Ideal for retirees or income-focused investors who want steady, predictable monthly payouts
- Works best in rangebound or high-volatility markets, where stock prices move sideways and option premiums can be collected repeatedly
- Particularly effective in tax-sheltered accounts, such as a Roth IRA (individual retirement account) or tax-free savings account (TFSA), where distributions aren't taxed
Reasons to be cautious:
- Limited upside: The strategy caps potential gains, causing underperformance in strong bull markets.
- Tax inefficiency: Frequent distributions and option income can increase the tax burden in taxable accounts.
- Not beginner-friendly: Covered call ETFs use derivatives that can behave differently from traditional index funds, making them more complex and harder to use effectively.
- Long-term performance risk: Over time, most covered call ETFs tend to lag traditional index ETFs due to their capped growth and higher costs.
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FAQ
Covered call ETFs FAQ
Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
