The ETF landscape includes plenty of exciting ETFs. Not all, however, can claim to combine high current income and outperformance. The ProShares Russell 2000 High Income ETF (ITWO ) has done just that so far this year with its innovative approach to covered calls.
Key Takeaways:
- Covered call ETFs offer opportunities for income, but often with a tradeoff of capping upside over time.
- ProShares’ suite of three covered call ETFs uses an innovative daily options strategy to target high levels of income and capture more performance from underlying equities.
- ITWO, the industry’s first Russell 2000 covered call ETF powered by a daily options strategy, has delivered high performance and robust income since its launch.
While other traditional covered call ETFs use a monthly-expiring options strategy for income, ITWO and the other income funds, namely those from the Russell 2000 index. Where other traditional covered call ETFs use a monthly expiring options strategy for income, ITWO and the other income funds from ProShares’ suite approach things differently.
ProShares’ covered call ETFs are powered by a daily options strategy that can capture more of the market’s upside. In a traditional monthly options strategy, if the underlying securities rally through the strike price of the sold option early in the month, it provides no further return until a new option is sold. With a daily options strategy by contrast, if ITWO’s underlying securities rally through the strike price of the options sold, any forgone upside is limited to one day. Over time, this allows ITWO to potentially capture more of the market’s underlying returns.
See more: How These ETFs Offer Current Income Without Sacrificing Performance
What’s more, it can do that while also still providing a high level of current income by selling the calls. On that front, ITWO has delivered. The covered call current income ETF has provided a 7.49% monthly 12-month trailing distribution rate as of May 31, per ProShares data.
In terms of total returns, the strategy has potentially done even better. According to YCharts data, the fund has returned 36.85% over the last 12 months.
That combination of income and performance could make ITWO one to wacan provide and is an appealing option for investors looking to add some current income. It represents a strong example of the income that covered call ETFs may be able to provide, and a standout option in the firm’s suite right now.
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