COVERED CALL ETFS

Covered call writing is an options strategy used to generate call premium from equity holdings, which can, in turn, result in additional income within an investment portfolio. Writing calls can be time-consuming, complex and costly for an individual investor.

By investing in a Horizons’ covered call ETF, you free up time by not having to manage individual option positions, while you receive institutional option pricing and expert trading execution – all in a convenient, low fee ETF structure.

Horizons ETFs offers the largest family of covered call ETFs in the United States giving you more “options” to meet your income needs.

 
Ticker ETF Name General Investment Objective Expense Ratio
QYLD Horizons Nasdaq 100 Covered Call ETF The Horizons NASDAQ 100 Covered Call ETF (“Fund”) seeks to provide investment results that will closely correspond, before fees and expenses, generally to the price and yield performance of the CBOE NASDAQ-100® BuyWrite V2 Index. 0.60%
HSPX Horizons S&P 500 Covered Call ETF The Horizons S&P 500® Covered Call ETF (HSPX) seeks investment results that, before fees and expenses, generally correspond to the performance of the S&P 500 Stock Covered Call Index™ (the "Index"). The Index consists of long positions in the stocks of the S&P 500® Index and corresponding short (written) call options on option-eligible stocks in the S&P® 500 Index. The call options are written out-of-the-money, whereby the exercise (or "strike") price of the option is above the market price of the stock. HSPX invests at least 80% of its total assets in securities that comprise the Index.  0.65%

A UNIQUE APPROACH TO COVERED CALL WRITING

All equity-focused covered call ETFs write shorter-dated (less than two-month expiry), out-of-the-money (OTM) covered calls. The preference for the shorter-dated options is to limit the impact of the time decay. Shorter-dated options tend to provide a balance between earning an attractive level of premium while increasing the potential that the options will expire OTM (a positive trait for covered call writers).

The preference for writing options OTM is to preserve more of the upside price potential of the underlying securities. For this reason, these ETFs should have a strong correlation to the underlying securities they are writing calls on, and investors should expect to generate more of any favorable performance trajectory of the underlying securities plus additional income from the premium option generated from writing calls. At the same time, investors should also anticipate that the risk profile of covered call ETFs that use OTM options is very similar to the underlying securities the ETF invests in.

The example below illustrates how an OTM strategy seeks to generate a total return that is comprised primarily of the price return of the underlying security that the covered call is written on, plus the value of any premium generated from the option.

Hypothetical Options Chart Assumptions: Stock purchased at $100. Current market price is $99. No loss experienced, due to the collection of $1 option premium. Maximum profit potential is $106. Call Option is written at $105 strike. Outcomes do not reflect the deduction of trading commissions or fees and charges associated with options.


How a buy-write strategy can typically be expected to perform in the following markets

During bear markets, range-bound markets and modest bull markets, a covered call strategy generally tends to outperform its underlying securities. During strong bull markets, when the underlying securities may rise more frequently through their strike prices, covered call strategies historically have lagged. Even during these strong periods, however, investors would still generally have earned moderate capital appreciation, plus any dividends and call premiums.