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QYLD is a passive index ETF that uses a covered call strategy to enhance yield and lower volatility. The fund was created by Global X and tracks the Nasdaq 100. The manager follows a “covered call” or “buy-write” strategy, in which the Fund buys the stocks in the Nasdaq 100 Index and “writes” or “sells” corresponding call options on the same index.
Covered call ETF usually protect against downside risk. This being said, the covered call strategy provides limited downside protection. Also, when you write a covered call, you give up some of the stock’s potential gains. Covered call ETFs will tend to have a higher yield and a lower performance (in bull markets) than the portfolio they track.
Is QYLD a good investment?
Positives
Attractive yield thanks to money earned issuing call options;
Lower volatility than investing in a NASDAQ 100 ETF such as QQQ;
Suits conservative investors and income seekers;
High volatility usually increases the premiums earned by the fund;
Saves you time and effort (if you were youself intesreted on writing call options in the NASDAQ 100.
Negatives
Poor performance. You are essentially giving up on the upside potentiel of the NASDAQ 100;
The strategy of covered calls becomes ineffective in an unpredictable market;
QYLD is dominated by Tech firms so it’s far from being a diversified inevestment;
High fees (0.60% total expense ratio).
