Global X launches three covered call ETFs

Oksana Patron

2 February 2023

Global X ETFs has announced the launch of three exchange traded funds (ETFs) which will be the first covered call funds in Australia.

The firm said that covered calls was a well-stablished income generation and downside protection strategy among sophisticated investors.

A covered call or a buy-write involved selling call options over stocks an investor already owned while the selling generated income in the form of a premium so it still makes investors selling call options eligible for dividends and franking credits from their shareholdings, the company explained.

The three new ETFs would include Australia’s first S&P/ASX200 passive covered call ETF, the Global X S&P/ASX 200 Covered Call ETF (AYLD), as well as the Global X Nasdaq 100 Covered Call ETF (QYLD) and the Global X S&P 500 Covered Call ETF (UYLD).

AYLD, QYLD and UYLD will track, respectively, the following indexes: the S&P/ASX BuyWrite Index, the Cboe Nasdaq-100 BuyWrite V2 Index and the Cboe S&P 500 BuyWrite Index.

Global X said that both QYLD and UYLD were already listed in the US and represented the two largest covered call ETFs in the world, measured by assets under management (AUM).

According to the company, the income generated by selling call options can help portfolios maintain performance during period of falling markets or sideways trading.

In addition, call option premiums usually rise during periods of higher interest rates and market volatility and the trade-off is that upside potential may be capped, as the options may be “called” if markets move higher, the firm said.

“We consistently hear how important income is to investors across all age groups. We see options strategies, incorporated in ETFs, as a great entry point for investors to supplement existing income sources like dividends or coupons from bonds,” Blair Hannon, head of investment strategy at Global X, added.