Covered call exchange-traded funds (ETFs) have quickly grown in popularity as investors search for ways to boost yield in uncertain markets. A covered call ETF essentially trades upside price appreciation for above-average income generation.
The rise in covered call ETFs became especially noticeable after the 2022 bear market, when these funds outperformed broader equity benchmarks due to their ability to capitalize on elevated market volatility. Investors were drawn to their high-income potential, often yielding far more than traditional dividend ETFs.
But this isn't a free lunch. Like most derivatives-based strategies, covered call ETFs come with trade-offs and added complexity. That's why it's important to understand how they work and whether they fit your portfolio before investing.
Seven best covered call ETFs in 2026
Covered call ETFs have exploded in popularity thanks to their high yields and defensive appeal. But not all funds in this category are built the same. In this section, we'll go over seven of the best covered call ETFs for 2025. Some follow strict indexes, while others are actively managed. Some prioritize income above all else, while others try to strike a better balance between yield and growth.
For each one, we'll look at how it performed historically, its yield (either on a forward, trailing-12-month, or 30-day Securities and Exchange Commission (SEC) basis), its expense ratio, whether it's active or index-based, and the reason it's worth considering.
1. Global X S&P 500 Covered Call ETF
The Global X S&P 500 Covered Call ETF (XYLD +0.28%) 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
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, clocking 10.79% on a trailing-12-month basis -- but that yield 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 7.98% 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 +0.45%) 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 stocks in the Nasdaq-100. 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.
NASDAQ: QYLD
Key Data Points
Because the Nasdaq-100 is more volatile, dominated by tech and growth stocks, this ETF collects larger option premiums. That's why its 12-month yield has been higher, at 11.83%. 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 8.79% 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 +0.28%) is the largest covered call ETF on the market, with more than $42 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 9.41% annualized return.
The fund currently yields 8.13%, based on its 30-day SEC yield, and charges a low 0.35% expense ratio. 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 +0.68%) 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 NEOS S&P 500 High Income ETF, a meaningful portion of those distributions is classified as return of capital, which can help defer taxes by reducing cost basis instead of 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 a 19.84% annualized return, outperforming the CBOE Nasdaq-100 BuyWrite Monthly Index, which returned 14.56% 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 trailing-12-month yield of 5.06% but superior long-term total returns. Over the past five years, it has returned 12.07% annualized, outperforming the CBOE S&P 500 BuyWrite Index's 9.33% 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.
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.
Physically backed versus synthetic exposure: Physically backed ETFs hold the underlying shares of ETFs and sell call options directly on those positions. Synthetic structures replicate exposure using derivatives, such as swaps or combinations of options and cash. Synthetic exposure can reduce transaction costs or improve tax efficiency but adds counterparty risk.
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.
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 create a higher 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 lag traditional index ETFs because of their capped growth and higher costs.
Related investing topics
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.
Fees are the next filter. Covered call ETFs typically charge more than plain 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.
