Equities and fixed income alike have dealt with bouts of volatility this year. That could go a long way toward explaining why so many investors are flocking to options-based income ETFs. That conversation should include the Invesco QQQ Income Advantage ETF (QQA ). That ETF is the covered call counterpart to the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ).
QQA debuted last July. As highlighted by an assets management tally of $213.1 million as of May 2. it was a well-timed launch. And it’s one that’s proven adept at garnering traction among income investors.
DNA helps. QQQ and QQQM are highly popular ETFs. And QQA can be paired with either of those funds. That’s because QQA provides income not often found with traditional, pure beta, tech-heavy funds. For example, QQA sports a 30-day SEC yield of 10.60% versus 0.65% on QQQM.
QQA's Myriad Perks
Options writing has long a beloved income-generating strategy. But many investors view it as complex and time-consuming. Those burdens are eased thanks to ETFs such as QQA. For its part, the Invesco fund provides the added insurance of being actively managed. That implies it can leverage that added oversight to potentially capture superior options premiums relative to index-based rivals. In other words, design and discipline matter with options income ETFs.
“The design of a call writing strategy can affect the size of the premium collected and the ability for potential capital appreciation. Shorter term call options with a disciplined rebalancing schedule can generate more yield,” according to Fidelity.
As noted above, a significant part of QQA’s potential allure to income investors lies in its simplicity and efficiency, Those are two traits hard to come by for novice, income-hungry options traders.
“In essence, a covered call strategy within an ETF works as follows: equities (the core part of the portfolio is invested in the market) plus the short call option (written on an underlying index or stock) equals potential cash flow plus capital appreciation. Additionally, premiums collected can potentially mitigate overall portfolio volatility,” added Fidelity.
Of course, there are risks. As is the case with other covered call strategies, QQA is unlikely to capture all of a rally. That’s been seen over the past month. QQQ/QQQM rebounded, gaining 7.83%. But the options ETF rose “just” 5.20% over that period.
If they’re aware of the possibility of leaving some upside on the table prior to getting involved with ETFs like QQA, income investors could come to appreciate the other positives offered by the fund.
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