Covered call exchange-traded funds (ETFs) are all the rage. And as I’ve said here, there, and everywhere — I don’t get it. It is not that I’m anti-income. Just the opposite, in fact. But these ETFs do not typically add to return, and they don’t remove much risk of major loss. Historically, most of them get about 80% to 95% of the upside of the underlying ETF or stock index basket. And roughly the same portion of the downside.
In other words, take an ETF that writes covered calls on the S&P 500 Index ($SPX) or Nasdaq 100 ($IUXX). If you look at the returns over time for those ETFs, they will likely track those indexes up and down. Most of their value to investors is to convert gains in that index into monthly cash flow.
