ETF-based option strategies are linked to long positions in a single stock, purportedly to generate additional income with the sale of options - by 'writing' calls on the underlying asset itself or on a synthetic replication of its price movements
The sale (writing) of in-the-money calls is a popular strategy marketed "to generate income" but accounting in effect for a risk premium as the seller takes on volatility from the option buyer
The drivers of such 'enhanced income strategies' blend the equity risk premium for holding long asset positions (or their synthetic replication) and the volatility risk premium rewarding the option sale
Consequently, covered call strategies will have a favorable outcome in less volatile, sideways moving markets, when the option-leg expires without hitting the strike price
Without the benefit of a diversified investment in a pool of assets, covered calls on single equities are exposed negatively
- to a falling price trend - since the option strategy provides no downside protection
- to high volatility - relative to the option's implied volatility - making the risk premium unprofitable
As shown on the performance / volatility chart, the reverse is true
- with stock prices trending up, harvest the upside - within limits set by the call strike price,
- favoring below average share price volatility
For deeper insights, rank the fund selection by performance or by volatility for the selected time period
Over time, fund price momentum signals trends of the last 5 days against a 20-day average
For comparison, select various time frames in the top right menu box, from 2 weeks to a full year (performance of some very recently listed ETFs may not be significant for lack of price data)