QYLD - QYLD: Risks Outweigh Upside Potential

2024-03-27 18:14:05 ET

Summary

• Global X NASDAQ 100 Covered Call ETF has gained popularity among investors for its covered-call strategy.
• However, the current dividend yield of ~11.6% may not be sufficient to compensate for the downside risks.
• The current option premium is relatively low (because of the low implied volatility) while downside risk is high given the elevated P/E of the Nasdaq index.

Thesis

The Global X NASDAQ 100 Covered Call ETF ( QYLD ) has gained popularity among investors. It uses a covered-call strategy (more on this later) to strike a balance between income and growth potential. Admittedly, its use of covered calls puts a limit on its upside potential compared to other indexed ETFs that track the Nasdaq 100-Index (NDX) directly. However, by selling calls, this capped upside also translates to higher current income (and also potentially lower volatility during market corrections)....

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