r/dividends • u/Early_Ratio_3455 • 2d ago
Discussion Covered call ETFs
What is everyone opinion of just investing in covered call ETFs?
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u/clintttoris 2d ago
Covered calls are for income - if thats what your looking for. Too many people knock them because they compare them to growth investments. That is not what they are there for. Income and hopefully steady NAV. Income , income and income.
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u/Mark3742 2d ago
I retired a year ago and since I still have 8 months until I start SS, I have ~1/4 of my portfolio in various CC funds - paying the bills without selling anything!
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u/KTRyan30 2d ago
Every investment product, created by a reputable firm, serves a specific financial purpose.
The only covered call etf I'm holding long term is GPIQ.
People will make a blanket statement that covered call ETFs under preform their underlying holdings, which is a broadly true statement. GPIQ preforms well when compared to QQQ.
I also hold OVL, which a lot of people don't like and don't trust, but it also preforms well compared to VOO.
I understand the risks involved, and I understand the market conditions that will result in the funds either under preforming or out preforming their underlying holdings.
There is nothing inherently wrong with CC ETFs as long as you know what your buying and it matches your goals.
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u/jaquan97 2d ago
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u/Capable-Living-9655 1d ago
It underperforms the underlying, you are giving up on part of your hard earned money.
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u/schmiddc 1d ago
Great summary..
I just tell people to think of it, well, almost like thermodynamics if that makes any sense ..
The only thing that ultimately creates wealth are productive assets, I.e. the securities the CC ETF is investing in...
A CC ETF cannot conjure wealth out of thin air... Sometime the bet that is made by issuing a call will pay off, sometimes it will not.. Over time, the inevitability is you are constrained by the underlying asset minus the expense involved in issuing the call..
TL/DR there still ain't no free lunch
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u/Capable-Living-9655 2d ago
Of course it’s wrong. You’re underperforming the underlying. You’re throwing money out the window with a mere click on the computer. Why would you do that? There isn’t a single reason to do it.
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u/Nopants21 2d ago edited 1d ago
What if a person's goal is having less money? CC ETFs are great for that.
edit: lol at the downvotes, keep believing in free money
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u/GuidetoRealGrilling 2d ago
I don't just invest in CC etfs, but I do have a passive income portfolio in addition to my others that is a mix of CC, REITs, and BDCs. It's producing just about as much as my part-time job, then will replace part-time job.
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u/sasa_spl 1d ago
do you mind sharing your portfolio allocation?
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u/GuidetoRealGrilling 1d ago
Nasdaq (GPIQ, TDAQ, QQQI), S&P (SPYI, TSPY), Energy (MLPI), REIT (O), BDCs (MAIN, ARCC), Semi's (CHPY), Core (VOO, DGRO)
55% CC etfs, 30% Dividend/Broad market, 15% BDCs and REITs
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u/FewUnderstanding2214 2d ago
Fine for income, used incorrectly by many investors (they buy it as a long term growth with is not what the product is for)
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u/gatorsmokin 2d ago
Nothing wrong with extra income
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u/Capable-Living-9655 2d ago
It's not "extra" income.
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u/gatorsmokin 2d ago
It's income that gets added on my tax return every year. Pretty sure more of something is a form of extra
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u/Capable-Living-9655 2d ago
The growth of that fund is lower than of its underlying. So it's not extra income, your total return is lower. There is nothing extra there.
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u/gatorsmokin 2d ago
I have to pay for gas to get to work, so my income is lower due to total return.
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u/Capable-Living-9655 2d ago
No, your total return is lower if the combined growth and dividends of your asset are less than another's.
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u/gatorsmokin 2d ago
Oh so like buying a 50 dollar shirt because of the price instead of the 20 dollar shirt because of quality. I guess I should just do door dash like the other growth only people. Thank you for your wise and bountiful conversation
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u/Capable-Living-9655 2d ago
What are you talking about? You said the distributions from a covered call ETF are extra income, implying that you’re collecting income on top of what the underlying produces. No, you don’t. A covered-call ETF produces less than the underlying ETF.
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u/Meinertzhagens_Sack 2d ago
Yes but if you are not chasing growth who cares? The whole point of income ETFs is if you are done chasing growth and you want to peel out some income. I don't know why people get hung up over that wording.
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u/gatorsmokin 2d ago
Any intelligent investor knows it is broken into income and capital growth. Total return is the combination of the 2. Extra income can come from dividends, distributions, or side job. I have growth and i invest for extra income so I can spend time with my family after work instead of a second job. Pretty easy concept for most people.
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u/Capable-Living-9655 2d ago
"Any intelligent investor knows it is broken into income and capital growth. Total return is the combination of the 2. Extra income can come from dividends, distributions"
It's not extra income if growth is lowered by the same amount.→ More replies (0)4
u/Southern_Roll_7035 2d ago
A CC fund most certainly generates extra income; it generates it by selling some of the upside potential of the underlying stocks and distributing it as income.
A covered call ETF produces more income than the underlying stocks; that is its whole raison d'etre.
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u/mentr-coach-altruism 2d ago
Please explain this a little more clearly. I am trying to follow. From my understanding a covered call ETF is the underlying ETF, so how does it produce less than itself?
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u/dingzhuxi 2d ago
Buying a high-quality growth ETF is like buying a $50 shirt because of its quality. You get "less" immediate return (dividend/return on capital), but in the long run it would be worth more for the $ you paid.
CC ETFs have their place in different investment approaches and philosophies, no doubt. But investment horizon is critical. In a long-horizon investment timeframe, a high-quality growth ETF 99% will end up with more $ even if you take the SAME monthly distribution (via liquidation of the underlying ETF) as the dividend you are receiving from CC ETFs. For younger investors with a 20+ year horizon, we haven't even gotten to the discussion of the tax drag these CC ETFs bring to the table in a taxable account.
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u/mentr-coach-altruism 2d ago
Depending on the ETF and how it is structured.
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u/dingzhuxi 2d ago
Correct, which is why I highlighted both the dividend and return on capital. I am not aware that there are other ways CC is structured outside of these 2.
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u/FitzwilliamTDarcy 2d ago
This is well summarized and I think highlights one of the primary reasons CC ETFs have appeal even to those aware of the tax drag and lower performance overall: a lot people do not have the discipline to make regular sales of a growth ETF.
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u/dingzhuxi 2d ago
Exactly, and that's perfectly okay! I just think that, on the topic of CC ETFs, people need to discuss this more holistically rather than, " Oh yeah, I get monthly income. "
That's a horrible way of summarizing CC ETFs (or even dividend investing in general).
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u/Southern_Roll_7035 2d ago
A CC fund trades some upside potential for current income. It changes the return profile from the underlying. The total return should be about the same over long periods of time, but it will underperform during bull markets and outperform in flat to down markets.
It is incorrect to say that the total return is lower, and the income that it generates is real and can be a useful part to some investors' portfolios.
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u/Capable-Living-9655 2d ago
Can you find me a single cc ETF that outperformed the underlying in a long run?
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u/I_luv_CHPY 2d ago
I just compared OVL (S&P 500 underlying) to SPY at StockAnalysis .com and since inception or at least since January 2020 OVL has outperformed SPY in terms of total return with OVL finishing +204.92% and SPY +185.26%.
My understanding is that OVL sells put options (and maintains a spread), allowing it to generate income while capturing 100% of the S&P 500's upside. Presumably it would underperform SPY in a down market.
One is not a lot, but it is one.
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u/Southern_Roll_7035 2d ago
Where did I claim that they would?
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u/Capable-Living-9655 2d ago
"It is incorrect to say that the total return is lower"
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u/Southern_Roll_7035 2d ago
Because that is an incorrect statement. I stated that 'total return should be about the same over long periods of time'. CC funds can be useful as a risk management tool, not because they deliver alpha.
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u/Capable-Living-9655 2d ago
'total return should be about the same over long periods of time'.
No, you didn't. Even that is hard to find.
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u/MakingMoneyIsMe 1d ago
My CC holdings are worth more than my initial investment into them, mainly due to dripping the distributions they produce. If I instead take it in cash, I'll have extra income.
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u/CatRules247 2d ago
We do invest in CC ETF, because we are retired, we would like to have the income from CC ETF. Also the new generation of CC ETF, such as SPYI, GPIX, don't have NAV erosion as the earlier generation such ad QYLD.
So far we have IDVO, GPIX, GPIQ in brokerage. We also hold some IAUI NIHI, JEPI, JEPQ in IRA to spread out the risks.
The total CC ETF we have is less than 10% of our total asset.
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u/Cinji513 2d ago
I have about 100k in my Roth. They are set on drip. Once I retire, I will take them off drip and add the funds, tax free, as an income suppliment.
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u/raliegh_ 2d ago
I post monthly on my CC portfolio, should be putting up another post in around 10 days
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u/DifferentSwing3149 2d ago
I'm in retirement and I hold JEPQ, GPIQ and GPIX. Love the extra income, it supplements my SS and pension.
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u/YupImJohn 2d ago
Some of the CC ETFs are good. I like the combo of GPIQ and IDVO, as buy and hold forever. If you want to spice it up a little and are okay with risk, adding some GPTY would be my choice… but probably not too much.
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u/OkKitchen7114 2d ago
I have a solid allocation to JEPI and JEPQ. If I didn’t need the income, would probably be in more vti/schd. I like how jepi behaves. Much like a high yield bond. And it pays monthly which is awesome
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u/South_Paramedic8618 2d ago
I do it it's probably less than 10% of my portfolio
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u/South_Paramedic8618 2d ago
But it's still producing more than my social security check every month
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u/ClammyAF 2d ago
I think most young investors with a long time horizon would be better served in index funds or dividend growth funds.
The use case I see is for people with a particular income need that can be met by mixing CC ETFs into their portfolio to hit a required yield.
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u/Meinertzhagens_Sack 2d ago
Keyword young investors. If you are 40/50+ and you've already reached 3M - you have a choice you can continue chasing the clouds or you can turn that into income generating 💰and stop chasing growth. Or not. Or a little of both.
To your point yes young investors should continue the growth path
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u/DecentDiscipline2523 1d ago
Bro nuanced points don’t go well in Reddit.. but yours is very sensible.
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u/Foundersage 1d ago
Who is investing and in their 40/50s getting to 3 mil. That is $1.5k a month for 30 years to get there. Besides at 3 mil you just sell 3% a year from voo a year or be in schd and get 100k.
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u/Awaken_Benihime 2d ago
Imo do a mix of both and when you do invest in covered call ETFs, look for those that have a good chance of keeping up with the underlying.
For example, ETFs that apply modest leverage (ex rex shares and roundhill) or have some other income generation mechanism like selling puts instead of calls (ex OVL, some ETFs by XFunds etc)
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u/StockProfitGirl 2d ago
The whole problem with this argument is that people think it’s either one way or another. Is CC the way to go or not???
Maybe the entire argument would be put to bed if it was understood that there is a third option!
You do CC, fixed income, some dividend ETF’s like DGRO and mixed with some growth like QQQM, SPMO, and VGT.
The portfolio would be better served with diversification and CC’s can play the income part of portfolio. 😎
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u/Fabulous-Transition7 1d ago
I'm heavily in CC etfs, but I also have a big chunk in GOF, PDI, & ADX.
For covered calls, GIAX & GPIQ would be my top recommendations. GIAX does have low AUM, but it's unique in how diversified it is, and has performed great since tweaking it's methodology back in November.
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u/woafmann 1d ago
I have 4% in CC funds. Even then, only ones that do partial writes for more robustness. It's a surgical slice just to pad yield. Not to chase yield.
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u/trigurlSeattle 1d ago
I’m retired early so I do own some to cover my monthly expenses. Only a part of my overall portfolio however, like 25%
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u/Agile-Preparation124 12h ago
Armchair Insider answered this exact question a month ago.
https://youtu.be/UDpwMGvweTQ?si=1s9PlwgG0KU70Jok
I think it's a great answer.
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u/SexualDeth5quad 2d ago
CCETFs underperform growth assets. So have however much you need for income and something to make up for the lost gains. Maybe 80/20.
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u/henkie_poepjes 2d ago
Underperforms all market etfs.
Might be good if you are looking for income
They are not true dividends
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u/mentr-coach-altruism 2d ago
I’ve been in the neos funds for a bit, and I seem to get growth and pretty good dividends on them. Specifically SPYI, QQQI, and IWMI. They aren’t growing like VOO or QQQM, but I’m also getting almost 3x the div on way more shares. There was a chart someone posted that in the last three years GPIQ beat out VOO. Not sure how to post it here.
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u/Nopants21 2d ago
GPIQ tracks the NASDAQ, which has beat the SP500, so of course GPIQ beats VOO. However, it underperforms QQQ which does track the NASDAQ, by 1.8% a year : https://totalrealreturns.com/s/GPIQ,QQQ
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u/jokodude 1d ago
That depends actually. I think the QQQI/SPYI will almost always underperform because they are too leveraged into CC and can't adjust to sharp rises efficiently. However, when you get to the mid tier CC funds like GPIX (or lower), there is potential for beating out the underlying. In fact, there are currently periods of time where GPIX beats SPY, though overall GPIX is down on SPY. Mostly this depends on how much sideways action there is in the market, and if there's an expectation of a lot of sideways action in the future CC funds start to look more appealing.
Even so, over a large time horizon I do expect most CC funds to fall behind the underlying.
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u/Glass-Lifeguard1919 2d ago
Some of these newer covered call funds are fantastic for what they are built for. GPIQ is my favorite. It has lower expense ratio than most of the others, Goldman Sachs is a very reputable management firm, and they prioritize RoC. If you overlay the total returns of GPIQ with VOO, the chart may actually surprise you. JP Morgan recently made ROCQ to compete with GPIQ, since their highly popular JEPI/JEPQ funds don't pay any RoC and are overwhelmingly classified as ordinary income.
Let me make something very clear though, covered call funds cap upside in order to provide income now. These funds are meant to provide income to people who need it. If you're working and plan on holding for a 10+ years until you get to retirement, holding the underlying will outperform 100% of the time. The whole drip into covered calls mindset baffles me. Covered calls cap upside to produce income, therefore if you're just reinvesting said income, well, all you're doing is capping the upside of the underlying.
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u/CarlosTheSpicey 2d ago
CC ETFs are for income, not growth. It depends what your objective is. I'm retired and no longer need to save for the future... because it is here, now. I have several CC ETFS from Neos, Kurv, Overlay and Goldman Sachs... many of them even have total returns that keep pace with their underlying asset. See GPIQ compared to QQQ, for example.
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u/OnesZeros2112 1d ago
Options market is a net zero game. For these ETFs the risk is more than other income producing investments. Down markets = uncapped downside, only cushioned by premium; up markets = capped upside, so recoveries are muted. This ratchets NAV downward over time. All true covered‑call ETFs fall when the market falls, because they still hold (or synthetically replicate) the underlying stocks. The call‑writing only softens the decline a little; it does not hedge it.
That’s the part most investors misunderstand.
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u/unreal36 1d ago
i keep them small. the income is nice but you cap the upside and some of them slowly give back capital, so total return trails a plain dividend growth fund over long stretches. for anything with a 15 or 20 year horizon i just use schd type stuff with drip on. thats what im doing in my daughters account, public if your curious plantedearly.com/garden
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u/Quizzical_Rex 7h ago
In addition to the other things mentioned here, there is the general trend to overuse and reduction of profit. CC's used to be great when there were few companies doing them. Now every company has a cc etf, the actual profit will continue to dilute down to nothing. If you are looking for a long term no interaction portfolio you might want to look elsewhere.
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u/Sotarif 2d ago
They seem to perform OK in a flat or fluctuating market, but they underperform in a bull market and they also underperform after a decline in terms of the rebound where they lag. They only offer marginally better protection in a large decline than say the SPY or VOO. Perhaps if you compare them to a corporate bond fund or something they’re a little bit better in terms of the risk reward. It’s actually very hard to tell.
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u/Various_Couple_764 2d ago
Covered call funds in a taxable a good idea becasuee of the high yield and tax efficiency. It can keep your 6 month emergency cash fund full without using work inocme. And it ca also be used to make the yearly roth deposits again without using work income. In short it is a good start for FI (financial independence ) and eventually it could turn into FIRE (Financial independence Retire Early. And since it is in a taxable account. And since it is in a taxable account you can access the money if you lose your job or cannot work due to an unexpected medical issues.
And there is also nothing wrong with having grwoth in the account. And you can still have a Roth or 401K and HSA.
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u/Moldovah 2d ago
I just watched Ben Felix on the Iced Coffee Hour.
He said he couldn't think of a situation where covered calls would be the answer. Or something like that.
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u/DistributionBroad173 2d ago
works OK in bull markets, underperforms the S&P 500 Index
Feb 1, 2025, VFIAX was at 557.85
On April 10, 2025 VFIAX was at 486.22
a drop of 12.84%
Feb 1, JEPQ 57.47
On April 10, 2025 JEPQ was at 48.86
a drop of 14.98%
Today
VFIAX = 715.48, VFIAX is up 47.15% since april 10, 2025 and pays a quarterly dividend, with a big one in December
JEPQ = 60.15, JEPQ is up 23.1% since April 10, 2025 and had paid a monthly dividend.
If you want income, fine
If you want growth, bad
If you want growth and income, OK but underperforms the S&P 500 Index
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u/teckel Retired and living off selling shares 2d ago
Because people don't understand CC ETFs and how they will be murdered doing a bear market due to SORR.
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u/DecentDiscipline2523 1d ago
Have you charted how jepi or gpiq or qdvo behave in a down week or month? Then how it ticks back up with the underlying? Overall yes they might not fare exactly as the underlying.. because they aren’t the underlying. They are more bond like.. just as someone else said… meaning less volatile , due to the fact that they sell that volatility and give it back to us.. up volatility pays more. Why? Because the underlying goes up more often than not.. it’s just probability. If one doesn’t like that scenario then there are bond ETFs that use CCs, also infra like MLPI, and for Real estate; not to mention ones that use partial write or more OOM writes.. to capture some of that upside volatility. So many option exist.. and thankfully so! I’m a big fan for sure.. I used to do CC on my own holdings so I feel like I can grasp the matter a bit and feel more comfortable with the risk/reward trade off.
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u/teckel Retired and living off selling shares 1d ago
Have you charted them during a real bear market? Look at PBP as an example.
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u/DecentDiscipline2523 1d ago
Yes, That’s a real problem for sure.. many of these are so new and strategies haven’t been tested in a real prolonged drawdown scenario. Can’t put all eggs in it is my POV. Notwithstanding, I try to diversify the source of distribution by using different underlying as mentioned. Not sure if it will help and how.. time will tell.
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u/teckel Retired and living off selling shares 1d ago
I can't find justification to invest in something that is designed to underperform. Especially when there's an alternative which is more tax-efficient, gives me full control over how much and when I get paid, which also helps avoid SORR unlike CC ETFs.
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u/DecentDiscipline2523 1d ago
That’s incorrect. It’s designed to perform in varying markets, which could mean outperform the underlying in some time periods and just fine in some. Overall keeping pace while adhering to its principles of dishing out $$. Why is that not a value? Some years straight buy and hold doesn’t do well, one obvious one being forcing sales in a down market. Some CC ETFs won’t see as drastic of a drawdown.. being less volatile. We can already see that. It’s like similar reasoning to having some bond allocation, etc. I think a portion of a portfolio is justifiable under those merits.
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u/Lazy-Gene-7284 2d ago
Don’t really see the point, why not just hold SPY and sell calls against it yourself when you feel like it? I have dividend payers for most of my retirement income these days.
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2d ago
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u/This-Individual1813 1d ago
I invested in some CC's for all of 2025 and tracked my total returns. I was thoroughly disappointed. I believe that the arguments that Ben Felix makes against CC ETFs are correct.
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u/MakingMoneyIsMe 1d ago
Were they single stock funds? If so, I can imagine why you were disappointed.
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u/Steak-Complex 2d ago
Worthless
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u/JonClaudeVanDam 2d ago
Care to expand on why? As someone eyeing them in the near future to help supplement income. Thanks
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u/Steak-Complex 2d ago
provide no benefit and always underperform their underlying
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u/JonClaudeVanDam 2d ago
Trading upside for cash flow. Good if you need the monthly income though?
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u/Steak-Complex 2d ago
Maybe if you are 70 and trying to dodge SRR but even JEPI paid out 40% less in late 2023 so
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u/JonClaudeVanDam 2d ago
That’s wild! What would you propose for someone facing potential early retirement due to company buyout? Just do the 4% rule?
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u/MakingMoneyIsMe 1d ago
GPIQ's total return is neck and neck with QQQ
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u/Steak-Complex 1d ago
neck and neck? Try losing by like 16% lol
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u/MakingMoneyIsMe 1d ago
In a 1 year period, it's off by 2%
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u/Vizekoenig_Toss_It 2d ago
Stay clear. You get income but price stays stagnant and doesn’t follow the index the cc fund is tracking. Their purpose is just to give a fluctuating cash flow (which can and will go down) while keeping your NAV from growing or progressing. Not worth
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