JEPQ - A Look At The Boom In Income Focused Nasdaq ETFs
2024-01-24 03:11:42 ET
Summary
- Nasdaq 100 focused ETFs with embedded options selling strategies have grown in popularity in recent years, with the QQQY recently coming to market, joining the QYLD and JEPQ.
- The QYLD focuses on at-the-money options, the JEPQ writes out-of-the-money calls, and the QQQY sells daily options with zero days to expiry.
- These ETFs have all underperformed the Nasdaq 100 itself since inception but with reduced scope for capital gains they should outperform over the long term.
- In the short term, however, implied volatility seems too low for these ETFs to perform well given the risk of a melt-up or crash in tech stocks.
ETFs with embedded options selling strategies have proliferated over the past few years, with several new funds coming onto the market attempting to generate high income by using covered call strategies. As technology stocks tend to have higher levels of implied volatility compared to the S&P500, the strategies that buy the Nasdaq 100 and sell offsetting call options have been able to offer exceptionally high yields. In this article I will take a look at the strengths and weaknesses of the main Nasdaq enhanced income ETFs on the market, before offering a note of caution about their efficacy in current market conditions....
A Look At The Boom In Income Focused Nasdaq ETFs