Monthly Covered Call Commentary

May 13, 2024

The Global X Research Team is pleased to announce the release of its Monthly Covered Call Report, featuring the premium and distribution values attained by its roster of covered call funds in April of 2024. The key takeaways below, as well as those highlighted within the report, recap some of the most pivotal undertakings to have taken place across the markets during the April roll period. They outline their influence over the option pricing environment and help substantiate changing investor sentiments as characterized by specific market indicators.

Covered Call Report – April 2024 Key Takeaways

  • The April roll period for the Global X Covered Call product suite, which ran from March 15th to April 19th, represented the first time in roughly six roll periods wherein three of the four major domestic equity indices experienced a negative performance.1 This is a credit to persistent inflation, which rose for the second-consecutive period in March according to the U.S. consumer price index, and geopolitical pressure as tensions were heating up in the Middle East.2 In this environment, the potential benefits of covered call option writing were put on display, with Global X’s 100% covered, index-based strategies reaping gains from option premia, while the markets trended lower.
  • The change in market direction contributed to the rising volatility trend that equities have been experiencing, of late. Indeed, the Cboe Volatility Index (VIX) and the Cboe Nasdaq 100 Volatility Index (VXN) have now advanced over four-consecutive roll periods and are trading back in the vicinity of their long-term averages.3 The undertaking was not isolated to the primary indexes, however, with implied volatility measures associated with our emerging markets and 50% covered, sector-based funds that track financial and information technology companies rising, as well.4
  • Although volatility measures for the indexes and funds that are tracked by the Global X Covered Call suite increased virtually across the board, premium values did not necessarily follow suit. This stemmed from softening investor sentiment, which can be explained by option trading volume that more-frequently favored put buying than in either of the previous two roll periods. Specifically, the Cboe Total Put/Call Ratio broke beyond the 1.2x plane twice during the roll period.5 This is an undertaking that hasn’t happened since October of 2023.

Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Performance current to the most recent month-end is available for XYLD, QYLD, RYLD, DJIA, XYLE, and QYLE.

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Topics: Income Strategies

Investing involves risk, including the possible loss of principal. Concentration in a particular industry or sector will subject the Funds to loss due to adverse occurrences that may affect that industry or sector. Investors should be willing to accept a high degree of volatility in the price of the fund’s shares and the possibility of significant losses.

The Funds engage in options trading. An option is a contract sold by one party to another that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed upon price within a certain period or on a specific date. A covered call option involves holding a long position in a particular asset and writing a call option on that same asset with the goal of realizing additional income from the option premium. By selling covered call options, the funds limit their opportunity to profit from an increase in the price of the underlying index above the exercise price, but continues to bear the risk of a decline in the index. A liquid market may not exist for options held by the fund. While the fund receives premiums for writing the call options, the price it realizes from the exercise of an option could be substantially below the indices current market price.

QYLD, QYLE, DJIA, QYLG, DYLG, TYLG, HYLG, and FYLG are non-diversified.

Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Beginning October 15, 2020, market price returns are based on the official closing price of an ETF share or, if the official closing price isn’t available, the midpoint between the national best bid and national best offer (“NBBO”) as of the time the ETF calculates current NAV per share. Prior to October 15, 2020, market price returns were based on the midpoint between the Bid and Ask price. NAVs are calculated using prices as of 4:00 PM Eastern Time. The returns shown do not represent the returns you would receive if you traded shares at other times. Indices are unmanaged and do not include the effect of fees, expenses or sales charges. One cannot invest directly in an index.

Carefully consider the funds’ investment objectives, risks, and charges and expenses before investing. This material must be preceded or accompanied by a current full or summary prospectus. Please read the prospectus carefully before investing.

Global X Management Company LLC serves as an advisor to Global X Funds. The Funds are distributed by SEI Investments Distribution Co. (SIDCO), which is not affiliated with Global X Management Company LLC or Mirae Asset Global Investments. Global X Funds are not sponsored, endorsed, issued, sold or promoted by Standard & Poors, MSCI, Dow Jones, NASDAQ, or Cboe nor do these companies make any representations regarding the advisability of investing in the Global X Funds. Neither SIDCO nor Global X is affiliated with Standard & Poors, MSCI, Dow Jones, NASDAQ, or Cboe.