New York-based Global X has expanded its suite of systematic covered call strategies with the launch of two new ETFs based on US quality dividend stocks and energy infrastructure companies.

Covered call strategies can deliver income that is diversified from traditional sources of yield.

The Global X S&P 500 Quality Dividend Covered Call ETF (QDCC US) and Global X MLP & Energy Infrastructure Covered Call ETF (MLPD US) have been listed on NYSE Arca with expense ratios of 0.35% and 0.60%, respectively.

A covered call is an options strategy whereby an investor holds a long position in an asset and sells or “writes” call options on that same asset in an attempt to generate more income (the additional income from option premium) than the asset would otherwise provide on its own from dividends or other distributions.

Covered call strategies can play an important role in a portfolio, offering a diversified source of income while helping to potentially mitigate downside risk.

Historically, during bear markets, range-bound markets, and modest bull markets, covered call strategies have generally outperformed their underlying securities. However, during strong bull markets, when the underlying securities may frequently rise through their strike prices, covered call strategies historically have tended to lag.

Rohan Reddy, Director of Research at Global X, commented: “During volatile markets, elevated premiums can make covered call strategies especially appealing for investors seeking higher income and risk management. Global X is a long-time leader when it comes to exchange-traded covered call strategies, and these latest two offerings build on our leadership by offering income solutions to investors seeking access to MLPs or quality dividend equities.”

Investment approach

QDCC invests in the Global X S&P 500 Quality Dividend ETF (QDIV US) which consists of stocks from the S&P 500 that rank in the top 200 of the index’s universe by both quality score and dividend yield.

MLPD, meanwhile, invests in the Global X MLP & Energy Infrastructure ETF (MLPX US) which consists of master limited partnerships (MLPs) and other midstream energy infrastructure entities listed in the United States.

Both QDCC and MLPD then also write one-month at-the-money call options on their targeted ETFs corresponding to 100% of their portfolio values. Upon settlement of the expiring call options, new at-the-money call options expiring in the subsequent month are written.

Global X’s ‘Income’ suite now consists of more than two dozen ETFs including covered call strategies based on the S&P 500, Nasdaq 100, DJIA, Russell 2000, and MSCI Emerging Markets indices, as well as strategies based on ESG-tailored versions of the S&P 500 and Nasdaq 100.

The firm also offers an extensive line-up of ‘Covered Call & Growth’ ETFs which provide long exposure to mainstream equity indices while writing call options on the same indices corresponding to 50% of the value of the fund’s portfolio.  The strategy, therefore, aims to provide regular income while still allowing investors to capture half the upside potential of the underlying index.