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Search for an ETF or holding
Updated 2mo ago.
Updated 2mo ago.
A covered call strategy involves selling call options on stocks you already hold. In exchange for an immediate premium, the seller agrees to sell the shares at a predetermined price if they reach that level. Covered call ETFs generate high distributions but cap the upside potential.
QYLD (Global X NASDAQ-100 Covered Call ETF) or, in Canada, ZWB.TO (BMO Covered Call Canadian Banks ETF) use this strategy. ZWB.TO generates distributions of roughly 5-6% per year, but its total return (price + distributions) is generally lower than XFN.TO (which tracks the same banks without covered calls) during bull markets.
Covered call ETFs are often misunderstood. Their high distributions attract investors seeking "income," but those distributions often include a return of capital (a return of your own money). In exchange for immediate income, you sacrifice long-term growth. They may suit retirees who need cash flow, but rarely investors in the accumulation phase.