“`html
Harvest Volatility: 3 ETFs for Covered Call Strategies Under $100
Table of Contents
A new crop of exchange-traded funds offers options traders accessible entry points for generating income through covered call strategies, even with limited capital.
The world of options trading, notably selling covered calls, can seem daunting – and expensive.Previously,viable ETFs for this strategy required considerable investment. As one analyst noted, “Back in february, the options were limited to just a handful of funds, and those all came with a hefty price tag.” These funds, while suitable for generating income through covered calls, demanded tens of thousands of dollars to purchase just 100 shares – the minimum required to write a covered call contract.
Fortunately, a growing number of ETFs priced under $100 per share now offer compelling opportunities for options sellers. These funds exhibit the necessary volatility to boost premium income and provide weekly contract availability, alongside healthy open interest
The iShares Bitcoin Trust (IBIT) has quickly become a popular choice for gaining Bitcoin exposure within a customary brokerage account. On September 29, IBIT traded at $6,209 (or $62.09 per share). Selling the October 3 $62.50 strike call – slightly out-of-the-money (OTM) – yielded a $2.75 premium per share, totaling $275 per contract. This translates to a remarkable 4.43% yield for a single week. Annualized across 50 trading weeks, this equates to roughly a 221% return, before accounting for commissions and taxes.
However, the high yields reflect the notable volatility of Bitcoin. Assignment is probable, and consistent returns will depend on IBIT’s weekly performance. Despite the risks, with Bitcoin maintaining its value above $100,000, harvesting volatility through covered calls on IBIT could prove profitable for those willing to accept the potential for “bag holding.”
Roundhill Splendid Seven ETF (MAGS): Concentrated Exposure,Lower Cost
For investors preferring equities over cryptocurrency,the Roundhill Magnificent Seven ETF (MAGS) presents an alternative. MAGS offers exposure to seven tech giants – Apple, Microsoft, Nvidia, Amazon, Alphabet (Google), Tesla, and Meta Platforms – weighted equally and rebalanced quarterly. exposure is achieved through swaps, with an expense ratio of 0.29%.
On September 29, MAGS traded at $64.78 per share,requiring $6,478 for 100 shares. Selling the slightly OTM Friday, October 3, $65 strike call generated a $0.36 premium per share, or $36 per contract. This equates to a 0.56% weekly yield, which annualizes to approximately 27.8% over 50 trading weeks, excluding taxes and commissions.
The ETF’s concentrated nature – holding only seven mega-cap stocks – introduces inherent risk. However, given the high per-share prices of these individual stocks, writing calls on them directly demands substantial capital.MAGS provides a more efficient and cost-effective way to implement a similar strategy within a single ticker.
If concerns about U.S. tech valuations arise,the KraneShares CSI China Internet ETF (KWEB) warrants consideration. KWEB tracks the CSI Overseas China Internet Index, providing exposure to Hong Kong-listed H-shares and U.S.-listed ADRs of Chinese internet companies. Key holdings include Alibaba, Tencent, and Meituan, collectively representing a significant portion of the portfolio.
KWEB is notably volatile, boasting a five-year monthly beta of 1.89 – almost double that of the broader market. This volatility translates into substantial options premiums. As of September 29, with KWEB trading at $41.95 per share, 100 shares could be purchased for around $4,195. Selling the Friday, October 3, $42 call yielded $0.55 per contract, netting $55 in premium – a 1.31% weekly yield. Annualized over 50 trading weeks, this equates to roughly 65.6% before taxes and commissions.
However, this high yield reflects significant uncertainty. Like Bitcoin, KWEB’s price is susceptible to downside risks stemming from China’s economic and regulatory landscape. Conversely, a surge in Chinese internet stocks would result in shares being called away, limiting potential gains. This trade-off is the very reason for the premium,but its fairness
