Bethesda, Md.-based ProShares has expanded its suite of covered call strategy ETFs with the launch of ProShares NASDAQ-100 High Income ETF (IQQQ) yesterday, an index fund that provides daily call options to investors.
“If you look at the performance of classic monthly covered call strategies, you give up a ton of upside to get that income stream,” said Simeon Hyman, global investment strategist at ProFunds.
Late last year, the firm introduced the S&P 500 High Income ETF (ISPY), which was its first covered call ETF. Covered call ETFs have been garnering significant attention lately as they have amassed more than $78 billion in assets as of February, according to Morningstar.
In a traditional covered call, which takes place once a month, the investor sells the option at a certain price. However, should the price continue to rise during the month, there is nothing the investor can do. They are forced to sell at that listed price.
In a daily call option, the investor can sell every day and can take advantage of a rising price over the month.
“The dailies allow you to efficiently generate the income you need, but also to participate in the full returns of the NASDAQ 100,” Hyman said. “It’s a substantial change in the performance profile compared to the legacy strategy.”
The new ETF follows the NASDAQ-100 Daily Covered Call Index, which attempts to recreate a strategy combining both a long and short position on the NASDAQ-100 Index, according to the firm.
The ETF will invest in NASDAQ-100 stocks and use swap agreements to gain exposure to daily call options, the firm said.
Since the ETF has a daily call option, it is an ideal fit for the equity bucket within a portfolio because of its ability to earn the full return on its equity holdings, according to Hyman.
The new ETF has a management fee of 55 basis points and will be available on most major platforms and broker-dealers.