How do covered call ETFs work?

Covered call ETFs work by owning a portfolio of stocks and selling call options on a reference index or on individual stocks, effectively selling future upside in exchange for immediate premium income.

Are covered call ETFs actively managed?

Some covered call ETFs are actively managed, either by selecting the underlying stocks or by tactically writing the call options rather than strictly following an index.

What are the risks of covered call ETFs?

The major risk is underperforming traditional long-only strategies over time. Other risks include potentially large tax liabilities and, for certain ETFs, counterparty risk from the use of ELNs.

How often do covered call ETFs pay distributions?

Most covered call ETFs pay distributions monthly, though a few offer weekly payouts.

Is a covered call ETF a good investment?

Only if you're holding it in a tax-sheltered account like a Roth IRA or TFSA and plan to withdraw the distributions for income. In all other cases, covered call ETFs often deliver lower total returns due to tax drag, capped upside, and higher expense ratios than traditional index ETFs.

How are covered call ETFs taxed?

Covered call ETF distributions can be a mix of income types, depending on the fund's structure. This may include ordinary income (especially for ETFs that use equity-linked notes), return of capital, capital gains, and a small portion of dividends from the underlying stocks. Because of this mix, the tax treatment can vary from year to year.

What fees do covered call ETFs typically have?

They are usually higher than broad-market or sector equity ETFs. Expense ratios commonly range from about 0.35% to 0.8%, depending on strategy complexity and management style.

Do covered call ETFs outperform traditional ETFs?

Generally, not when measured by total return over long periods. The option premium provides income but caps upside, which limits participation during strong market rallies. Covered call ETFs are better viewed as income and volatility-management tools rather than pure return maximizers.

7 Top Covered Call ETFs to Buy in 2026

By Tony Dong – Updated Apr 11, 2026 at 1:05 AM EST | Fact-checked by Frank Bass

Key Points

Covered call ETFs offer high yields but limit capital gains due to capped price appreciation.
Higher expense ratios and complexity in covered call ETFs necessitate investor understanding.
Evaluate risk-adjusted returns, fees, and tax efficiency when choosing covered call ETFs.

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.

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Best Covered Call ETF Comparison Table (as of April 2026)

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NYSEMKT: XYLD

Global X Funds - Global X S&P 500 Covered Call ETF

Today's Change

(0.25%) $0.10

Current Price

$40.19

Key Data Points

Day's Range

$40.09 - $40.21

52wk Range

$37.57 - $41.10

Volume

162K

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Each month, it sells an at-the-money (ATM) call option that expires in one month on 100% of its portfolio. The result is a consistently high yield, but that comes at a cost.

Because it writes calls at the strike price where the stock is currently trading, any upside beyond that is capped. That's why this ETF has returned only 7.87% annualized over the last 10 years, with reinvested dividends.

2. Global X Nasdaq-100 Covered Call ETF

The Global X Nasdaq-100 Covered Call ETF (QYLD +0.28%) is the more aggressive cousin to the previous ETF, using the same strategy but with different underlying holdings.

It tracks the CBOE Nasdaq-100 BuyWrite V2 index and holds all the Nasdaq-100 stocks. Like the Global X S&P 500 Covered Call ETF, it sells one-month ATM calls on 100% of its portfolio and charges the same 0.60% expense ratio.

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NASDAQ: QYLD

Global X Funds - Global X Nasdaq 100 Covered Call ETF

Today's Change

(0.28%) $0.05

Current Price

$17.95

Key Data Points

Day's Range

$17.88 - $17.96

52wk Range

$16.02 - $18.00

Volume

2.8M

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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 +0.67%) 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.

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NYSEMKT: JEPI

JPMorgan Equity Premium Income ETF

Today's Change

(0.66%) $0.38

Current Price

$57.49

Key Data Points

Day's Range

$57.09 - $57.54

52wk Range

$55.01 - $59.90

Volume

55K

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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.

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NASDAQ: JEPQ

JPMorgan Nasdaq Equity Premium Income ETF

Today's Change

(0.22%) $0.13

Current Price

$59.13

Key Data Points

Day's Range

$58.95 - $59.22

52wk Range

$51.02 - $60.14

Volume

241K

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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 +0.27%) 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).

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NYSEMKT: SPYI

Neos ETF Trust - Neos S&P 500 High Income ETF

Today's Change

(0.27%) $0.14

Current Price

$52.28

Key Data Points

Day's Range

$52.10 - $52.29

52wk Range

$47.40 - $53.38

Volume

86K

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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.

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NASDAQ: QQQI

Neos ETF Trust - Neos Nasdaq-100 High Income ETF

Today's Change

(0.30%) $0.16

Current Price

$54.02

Key Data Points

Day's Range

$53.73 - $54.04

52wk Range

$47.82 - $55.93

Volume

256K

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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.

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7. Amplify CWP Enhanced Dividend Income ETF

The Amplify CWP Enhanced Dividend Income ETF (DIVO +1.28%) takes a more selective and tactical approach to covered call investing. It starts with a concentrated, actively managed portfolio of 25 to 30 high-quality large-cap U.S. stocks.

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NYSEMKT: DIVO

Amplify ETF Trust - Amplify Cwp Enhanced Dividend Income ETF

Today's Change

(1.26%) $0.57

Current Price

$45.70

Key Data Points

Day's Range

$45.12 - $45.71

52wk Range

$40.00 - $47.30

Volume

505K

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Covered call ETFs FAQ

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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.

7 Top Covered Call ETFs to Buy in 2026

Key Points

Key Data Points

2. Global X Nasdaq-100 Covered Call ETF

Key Data Points

3. JPMorgan Equity Premium Income ETF

Key Data Points

Key Data Points

5. NEOS S&P 500 High Income ETF

Key Data Points

6. NEOS Nasdaq-100 High Income ETF

Key Data Points

7. Amplify CWP Enhanced Dividend Income ETF

Key Data Points

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Covered call ETFs FAQ

How do covered call ETFs work?

How do covered call ETFs work?

Are covered call ETFs actively managed?

Are covered call ETFs actively managed?

What are the risks of covered call ETFs?

What are the risks of covered call ETFs?

How often do covered call ETFs pay distributions?

How often do covered call ETFs pay distributions?

Is a covered call ETF a good investment?

Is a covered call ETF a good investment?

How are covered call ETFs taxed?

How are covered call ETFs taxed?

What fees do covered call ETFs typically have?

What fees do covered call ETFs typically have?

Do covered call ETFs outperform traditional ETFs?

Do covered call ETFs outperform traditional ETFs?

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Covered call ETFs FAQ

How do covered call ETFs work?

How do covered call ETFs work?

Are covered call ETFs actively managed?

Are covered call ETFs actively managed?

What are the risks of covered call ETFs?

What are the risks of covered call ETFs?

How often do covered call ETFs pay distributions?

How often do covered call ETFs pay distributions?

Is a covered call ETF a good investment?

Is a covered call ETF a good investment?

How are covered call ETFs taxed?

How are covered call ETFs taxed?

What fees do covered call ETFs typically have?

What fees do covered call ETFs typically have?

Do covered call ETFs outperform traditional ETFs?

Do covered call ETFs outperform traditional ETFs?

5 Best Short-Term Bond ETFs to Buy in 2026

ETF vs. Index Fund: What's the Difference and Which Should You Choose?

S&P 500 Index Fund Average Annual Return Rate

Your Complete Guide to the Nasdaq Composite Index

Best covered call ETFs to consider

Types of covered call ETFs

What to look for in a covered call ETF

Should you buy a covered call ETF?

Reasons to consider:

Reasons to be cautious:

Related investing topics

FAQ

1. Global X S&P 500 Covered Call ETF

Key Data Points

Key Data Points

Key Data Points

Key Data Points

Key Data Points

Key Data Points

Key Data Points

2. Global X Nasdaq-100 Covered Call ETF

3. JPMorgan Equity Premium Income ETF

4. JPMorgan Nasdaq Equity Premium Income ETF

5. NEOS S&P 500 High Income ETF