Investing Insights Covered-Call ETFs Are Booming. But Not All Yield Is Good
Jul 25, 2025
Daniel Sotiroff, a Senior Manager Research Analyst for Morningstar Research Services and editor of the ETF investor newsletter, dives into the world of covered-call ETFs. He explains their mechanics and why they're appealing to retirees seeking income. Sotiroff highlights the risks, especially for younger investors, and discusses the tax implications of holding these ETFs. He reviews popular options like the JP Morgan Equity Premium Income ETF and shares insights on their performance in 2025, emphasizing the importance of understanding fee structures.
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How Covered-Call ETFs Work
- Covered-call ETFs generate income by owning an asset and selling call options on it.
- The income comes from premiums paid by option buyers, similar to an insurance contract.
Income Drives Popularity
- Retirees and income investors like covered-call ETFs due to their high yields.
- They provide higher income compared to bonds and dividend funds in today's market.
Yield Fluctuations Explained
- High yields come from option premiums, which fluctuate with market volatility.
- Premiums and yields can swing widely, making income unpredictable.