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Monthly Covered Call Commentary

Jan 18, 2024

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The Global X Research Team is pleased to release the distribution and premium numbers for our covered call ETFs for December 2023. Global X’s Covered Call suite of ETFs generally invest in the underlying securities of an index and sell call options on that index, an ETF tracking the underlying equity index, or a similar equity index. These strategies are designed to provide investors with an alternative source of income, while offering different sources of risks and returns to an income-oriented portfolio.

Click here to download the December 2023 Covered Call Report 

During the most recent roll period for the Global X Covered Call Suite, major U.S. equity indices including the Nasdaq 100, S&P 500, and Russell 2000 experienced material increases in value. Optimistic investor sentiment was spurred by encouraging economic data, including a Consumer Price Index report that illustrated price inflation of 3.1%.1 The figure signified an ongoing course reversal from the steady climb in year-over-year CPI published from July through September. Meantime, nonfarm payroll, which is a measure of U.S. employment encompassing construction, goods, and manufacturing rose by a better than expected 199,000 jobs in November, and the unemployment rate declined to 3.7%.2,3 These undertakings led the VIX and VXN volatility indexes, which depict volatility associated with the S&P 500 and Nasdaq 100, respectively, to track lower, with the VIX ranging from 11.81 to 14.31 and the VXN fluctuating between 13.56 to 17.87 during the roll period.4 

Under these conditions, the December premiums collected by QYLD and XYLD came in relatively flat on a month-to-month basis, at 1.91% and 1.47%, respectively. The latest premiums can likely be attributed to implied volatility lingering at soft levels across both the S&P 500 and Nasdaq 100 Indexes.4

Past performance is not a guarantee of future results. For performance data current to the most recent month- or quarter-end or a copy of the Fund prospectus, please visit QYLD, QYLE, XYLD, XYLE, DJIA, RYLD, EMCC, QYLG, XYLG, RYLG, DYLG, TYLG, HYLG, FYLG.

 1As a general guideline, the monthly distribution of QYLD, XYLD, RYLD, DJIA, EMCC, QYLE & XYLE is approximately capped at the lower of: a) half of premiums received, or b) 1% of net asset value (NAV). For QYLG, XYLG, RYLG, DYLG, TYLG, HYLG, & FYLG, the monthly distribution is approximately capped at the lower of: a) half of premiums received, or b) 0.5% of net asset value (NAV). The excess amount of option premiums received, if applicable, is reinvested into the fund. Year-end distributions can exceed the general guideline due to capital gains that are paid out at the end of the year.

Fund Premiums and Implied Index Volatility

 

Implied volatility of Financial, Health Care, and Technology Select Sector SPDR Funds are calculated using Bloomberg 30 Day IVOL at 100% Moneyness LIVE (Listed Implied Volatility Engine), which is a hypothetical implied volatility measure devised using historical option pricing data on the respective funds on contracts with 30 days until expiration and strike prices that are at the money.

Options Premiums vs. Implied Volatility graphs include implied volatility for the Nasdaq 100, S&P 500, Russell 2000, and Dow Jones Industrial Average Indexes. QYLE, QYLG, XYLG, DYLG, and RYLG write covered calls on these same, aforementioned equity indices, thus, their premiums are not displayed here. DYLG, XYLE and EMCC have only rolled their options portfolios five, ten, and two times, respectively. Therefore Options Premiums vs. Implied Volatility graphs are currently not displayed for these ETFs and are expected to be added once more option premium data is received.

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To learn more about our covered call options, read the latest research from Global X, including:

Related ETFs

QYLD – Global X Nasdaq 100 Covered Call ETF

XYLD – Global X S&P 500 Covered Call ETF

RYLD- Global X Russell 2000 Covered Call ETF

DJIA – Global X Dow 30 Covered Call ETF                                                                      

EMCC – MSCI Emerging Markets Covered Call ETF      

QYLG – Global X Nasdaq 100 Covered Call & Growth ETF

XYLG – Global X S&P 500 Covered Call & Growth ETF

RYLG – Global X Russell 2000 Covered Call & Growth ETF

DYLG – Global X Dow 30 Covered Call & Growth ETF

TYLG – Global X Information Technology Covered Call & Growth ETF

HYLG – Global X Health Care Covered Call & Growth ETF

FYLG – Global X Financials Covered Call & Growth ETF

QYLE – Global X Nasdaq 100 ESG Covered Call ETF

XYLE – Global X S&P 500 ESG Covered Call ETF

EMCC – Global X MSCI Emerging Markets Covered Call ETF

Click the fund name above to view current holdings. Holdings are subject to change. Current and future holdings are subject to risk.

Category: Articles

Topics: Income Strategies

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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 in the Funds 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 engages 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 continue 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 index’s current market price. QYLD, QYLE, DJIA, QYLG, DYLG, TYLG, HYLG, and FYLG are non-diversified.

Companies with favorable ESG attributes may underperform the stock market as a whole. As a result, QYLE and XYLE may underperform other funds that do not screen companies based on ESG attributes. The criteria used to select companies for investment may result in the Fund investing in securities, industries or sectors that underperform the market as a whole, forgoing opportunities to invest in securities that might otherwise be advantageous to buy or underperform other funds screened for ESG standards.

International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.

Index returns are for illustrative purposes only and do not represent actual fund performance. Index returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

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.

This material must be preceded or accompanied by a current full or summary prospectus. Investors should read it carefully before investing or sending money.

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. 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.