The Global X Research Team is pleased to announce the distribution and premium figures for our covered call ETFs for August. Global X’s covered call suite of ETFs invests in the underlying securities of an index and sells calls Options on this index. These strategies are designed to provide investors with an alternative source of income while providing different sources of risk and reward for an income-oriented portfolio.
Click here to download the August 2022 Covered Call Report
In the month of August, the IX increased from 22.84 to 25.87. This relatively high level of volatility compared to historical averages resulted in higher premium levels for our covered call funds during the month of August.
For example, QYLD had a premium of 2.78% in August. However, volatility is still lower than in the late spring and early summer months as markets have become more accustomed to the Federal Reserve’s rate hike path and its strengthening of current policy.
Treasuries were also sold during the month of August, with 10-year yields rising from 2.65% to 3.20%. Major indices such as the S&P 500, Nasdaq 100 and Russell 2000 all sold off in August, with the Nasdaq 100 leading the field, down over 5.1%.
This compares to a -4.1% decline in the S&P 500 and -2.1% decline in the Russell 2000 over the period. The pressure that rising interest rates have put on equities has subsequently led to this increased volatility in the market, which has caused option premiums for covered call writing strategies to remain elevated relative to historical norms .
Overview of Global X Covered Call ETFs
As a general guide, each Fund’s monthly distribution is capped at the lower of: a) half of the premiums received, or b) 1% (for QYLD, RYLD, XYLD and DJIA)/0.5% (for QYLG and XYLG) of Net Asset Value (NAV). The excess amount of option premiums received, if any, will be reinvested in the fund. Year-end distributions may exceed general policy due to capital gains being paid at year-end.
Fund premiums and implied index volatility
QYLD: The Global X Nasdaq 100 Covered Call ETF adopts a “buy-write” (also called a covered call) investment strategy, in which the fund buys a basket of stocks and also sells (or sells) call options corresponding to the basket of inventories. The Fund uses this strategy in an attempt to improve its portfolio’s risk-adjusted returns, reduce its volatility and generate monthly income from the premiums it receives from writing call options.
XYLD: The Global X S&P 500 Covered Call ETF follows a “covered call” or “buy-write” strategy, in which the fund buys the stocks in the S&P 500 Index and “writes” or “sells” corresponding call options on the same index. .
RYLD: The Global X Russell 2000 Covered Call ETF follows a ‘covered call’ or ‘buy-write’ strategy in which the fund buys exposure to the stocks in the Russell 2000 Index and ‘writes’ or ‘call options’ on it. sold”. same index.
DJIA: The Global X Dow 30 Covered Call ETF follows a ‘covered call’ or ‘buy-write’ strategy, in which the fund buys and ‘writes’ or writes the stocks in the Dow Jones Industrial Average (also known as the Dow 30 Index). corresponding call options on the same index are “sold”.
QYLG: The Global X Nasdaq 100 Covered Call & Growth ETF follows a ‘covered call’ or ‘buy-write’ strategy, in which the fund buys the stocks in the Nasdaq 100 Index and ‘writes’ or ‘calls’ corresponding call options at around 50. sold”. % of the value of the stock portfolio of the same index.
XYLG: The Global X S&P 500 Covered Call & Growth ETF follows a ‘covered call’ or ‘buy-write’ strategy, in which the fund buys the stocks in the S&P 500 Index and ‘writes’ or ‘calls’ corresponding call options at around 50. sold”. % of the value of the stock portfolio of the same index.
Click on the fund name above to view current holdings. Stock changes reserved. Current and future holdings are subject to risk.
IX: The Chicago Board Options Exchange Volatility Index, commonly referred to as the VIX, reflects a market estimate of the future volatility of the S&P 500 Index based on the weighted average of implied volatilities.
Investing involves risk, including the possible loss of capital. Concentration on a particular industry or sector causes the Funds to lose money from adverse events that may affect that industry or sector. Investors in the Funds should be prepared to accept a high degree of volatility in the price of the Fund’s Shares and the possibility of significant losses.
The funds engage in options trading. An option is a contract sold by one party to another that gives the buyer the right, but not the obligation, to buy (call) or sell a stock at an agreed price within a specified period or date (Put). A covered call option involves holding a long position in a specific asset and writing a call option on the same asset with the goal of earning additional income from the option premium. By writing covered call options, the Funds limit their chance to benefit from a rise in the price of the underlying index above the strike price, but still bear the risk of a fall in the index. There may not be a liquid market for options held by the Fund. While the Fund earns a premium for writing call options, the price it realizes from exercising an option could be significantly below the current market price of the Index. QYLD, XYLD, RYLD, DJIA, QYLG and XYLG are undiversified.
Index returns are for illustrative purposes only and do not reflect actual fund performance. Index returns do not reflect management fees, transaction costs or expenses. Indexes are unmanaged and you cannot invest directly in an index. Past performance does not guarantee future results.
Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed by the fund. Broker commissions reduce returns.
Before investing, carefully consider the Funds’ investment objectives, risks, and charges and expenses. This and other information can be found in the Funds’ full or summary prospectuses, which are available at globalxetfs.com. Please read the prospectus carefully before investing.
Global X Management Company LLC acts as advisor to Global X Funds. The Funds are distributed by SEI Investments Distribution Co. (SIDCO), which is not affiliated with Global X Management Company LLC. Global X Funds is not sponsored, endorsed, endorsed, sold or promoted by Standard & Poor’s, MSCI, Dow Jones or NASDAQ, nor do any of these companies make any representation as to the advisability of investing in the Global X Funds. Neither SIDCO nor Global X are affiliated with Standard & Poor’s, MSCI, Dow Jones or NASDAQ.
Editor’s note: The summary bullet points for this article were selected by Seeking Alpha editors.