Covered call investing is popular. Individual stocks like $AAPL, $SPY, $QQQ generate solid income from selling calls.

But what if you don't want to manage 5-10 individual covered call positions? What if you want passive covered call income without the complexity?

Enter: Covered Call ETFs.

These funds automate the covered call strategy—buying stocks and selling calls—so you don't have to. You buy the ETF share once and receive regular dividends (monthly or quarterly) from the fund's covered call premium collections.

The pitch sounds perfect. But like all passive strategies, there are tradeoffs: higher yields come with lower capital appreciation, concentrated strategies, and hidden risks.

This guide breaks down the best covered call ETFs available in 2025, compares their yields, fee structures, and DTE strategies—and helps you decide if covered call ETFs deserve a place in your portfolio.

Prefer DIY covered calls? Our Strategy Analyzer lets you find and compare covered call opportunities on individual stocks, with real-time pricing and ROI calculations. Or explore income-ready ETFs in our ETF Finder.

What Are Covered Call ETFs? The Mechanics

A covered call ETF works in four steps:

The fund buys a basket of stocks (e.g., all 100 S&P 500 stocks, or all tech stocks in the QQQ)
The fund sells covered calls against those holdings (usually monthly)
The fund collects call premiums as regular income
You receive the income as monthly or quarterly dividends
You own the stock (if not called away), plus dividend growth

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Key Difference from Individual Covered Calls:

Aspect	Individual CC	Covered Call ETF
Management	You manage strikes, rolling, DTE timing	Fund manager handles it (systematically)
Income	Depends on your decisions	Passive, consistent (depends on strategy)
Upside Participation	You cap at your strike	Fund caps at their call strike (lower)
Downside Protection	None (full stock risk)	None (full stock risk)
Fees	Commissions + bid/ask spreads	Annual expense ratio (0.60-0.65%)
Diversification	Single stock	Basket of stocks (lower volatility)
Tax Efficiency	Your control	Fund determines (usually efficient)

How Covered Call ETFs Compare to Stock Dividends

Let's compare the real returns: holding $SPY for dividends vs holding $XYLD (covered call ETF on $SPY).

Historical Comparison (Last 2 Years):

$SPY (Regular S&P 500 ETF):
  2023 Price Appreciation: +24%
  2023 Dividend Yield: ~1.3%
  2023 Total Return: ~25.3%
  
$XYLD (Covered Call ETF on SPY):
  2023 Price Appreciation: +6% (capped by call strikes)
  2023 Distribution Yield: ~19% (from call premiums + dividends)
  2023 Total Return: ~25% (but $16 lower price = lost upside)

2024 Comparison:
$SPY Total Return (Jan-Nov 2024): +30%+
$XYLD Total Return (Jan-Nov 2024): +18-20% (capped, but high yield)

Insight:
  In BULL markets: XYLD lags (capped upside)
  In FLAT markets: XYLD wins (20%+ yield beats appreciation)
  In BEAR markets: XYLD still loses (no crash protection, but yield helps)

The Real Tradeoff:

You're trading capital appreciation for income. In bull markets, you leave money on the table. In flat/bear markets, income helps offset losses.

The Best Covered Call ETFs: 2025 Comparison

1. XYLD – The S&P 500 Covered Call ETF

Overview:

Underlying: S&P 500 (SPY/IVV holdings)
Strategy: Sells monthly calls at 1% out-of-the-money
Expense Ratio: 0.07% (very cheap)
Distribution Yield: 19-20% annually
Monthly Distribution: ~$0.018/share (from $0.95 stock price)

Strengths: ✅ Broadest diversification (500 stocks, not tech-heavy)
✅ Lowest fees (0.07% expense ratio)
✅ High yield (19-20%) suitable for income portfolios
✅ Very liquid (billions AUM, tight bid/ask)

Weaknesses: ❌ Capped upside at 1% above call strikes
❌ Lost significant upside in 2023-2024 bull markets
❌ Call strikes are systematic (not optimized for current IV)
❌ No downside protection (full stock risk)

Best For:

Conservative income investors in flat/declining markets
Retirees seeking passive monthly income
Portfolios already heavy in $SPY exposure

DTE Strategy:

Sells 1-month calls (30-45 DTE) at monthly expiration
Systematic approach (no IV optimization)
Average upside capture: ~1% per month

2. JEPI – JPMorgan Equity Premium Income ETF

Overview:

Underlying: Mix of dividend stocks + equity index options strategies
Strategy: Sells call spreads + covered calls on diversified equity holdings
Expense Ratio: 0.35% (moderate)
Distribution Yield: 9-10% annually
Monthly Distribution: ~$0.007/share (from $0.85 stock price)

Strengths: ✅ More balanced (lower yield but more upside preservation)
✅ Active management (JPMorgan adjusts strikes based on IV)
✅ Better capital appreciation (lower call strike costs = less upside cap)
✅ Downside put spreads provide some protection
✅ Large AUM ($8B+), very liquid

Weaknesses: ❌ Higher fees (0.35% vs 0.07% for XYLD)
❌ Lower yield than XYLD (9% vs 19%)
❌ Complexity (mixed call + put spreads harder to understand)
❌ Actively managed (performance depends on manager decisions)

Best For:

Investors wanting income + capital appreciation balance
Those uncomfortable with XYLD's capped upside
Accounts seeking steady but not maximum yield

DTE Strategy:

Varies by market conditions (active management)
Targets 15-45 DTE calls
Adjusts strike selection based on IV levels

3. QYLD – Covered Call ETF on NASDAQ 100

Overview:

Underlying: NASDAQ-100 (QQQ holdings)
Strategy: Sells monthly calls at 1% out-of-the-money on growth stocks
Expense Ratio: 0.07% (very cheap)
Distribution Yield: 18-19% annually
Monthly Distribution: ~$0.011/share (from $0.60 stock price)

Strengths: ✅ Tech-heavy (if you believe in continued tech growth)
✅ Same low fees as XYLD (0.07%)
✅ High yield (18-19%)
✅ Captures tech dividend (Nvidia, Microsoft, Apple)

Weaknesses: ❌ Caps upside heavily in tech bull markets (2024 worst for QYLD)
❌ Concentrated risk (only 100 stocks vs 500)
❌ Larger losses in downturns (tech volatility)
❌ More sensitive to growth stock rotation

Best For:

Aggressive income investors who think tech has peaked
Those want concentrated tech exposure with high yield
Expecting range-bound tech markets

DTE Strategy:

Identical to XYLD (1% OTM, 30-day calls)
Systematic approach
Less flexible than JEPI

4. PCI – Payden iMAS Core Plus Fixed Income ETF

Overview:

Underlying: Corporate bonds + equities (hybrid strategy)
Strategy: Covered calls on equity portion + fixed income
Expense Ratio: 0.35%
Distribution Yield: 6-7% annually
Quarterly Distribution: Variable

Note: PCI is primarily fixed-income, not equity-focused. Less relevant for pure covered call income, but worth mentioning for balanced investors.

5. Other Notable Covered Call ETFs

ETF	Underlying	Yield	Expense Ratio	Best For
JEPQ	Nasdaq-100 (JPM variant)	7-8%	0.35%	Tech income + upside capture
XYLD	S&P 500	19-20%	0.07%	Maximum income, broad diversification
QYLD	NASDAQ 100	18-19%	0.07%	Tech exposure, high yield
RYLD	Russell 2000	18-20%	0.07%	Small-cap income
XYLD	Ultra High Div (old ticker removed)	-	-	-

Covered Call ETF Yields: The Real Numbers

Why Yields Are So High (19%+ for XYLD/QYLD)

High yields sound amazing, but understand what's happening:

XYLD Example:

Underlying SPY at $450:
  Current dividend: ~$1.70/share annually (0.4% yield)
  
Covered call premium: 1% per month = 12% annualized
  (Selling calls at $450 × 1.01 = $454.50 strike)

Total distribution: 0.4% + 12% = 12.4% annually

But wait, where's the other 7%?

Answer: **Return of capital + price appreciation capture**

SPY normally appreciates ~10% annually
XYLD caps at 1% appreciation (calls get exercised)
Difference: ~9% lost upside

When SPY appreciates 10%, XYLD's calls get assigned
Fund is forced to sell at strikes (misses extra gains)
That "lost 9%" is recycled into distributions

So XYLD's 19% yield = 12% call premiums + 7% captured price appreciation return as distribution

Key Insight: High yields aren't "free money"—they're a tradeoff for capped appreciation.

Yield Breakdown by Market Condition

Market Scenario	XYLD Yield	XYLD Price Change	XYLD Total Return	SPY Total Return	Winner
Bull (+10%)	12%	-3% (capped + distributions consumed)	+9%	+11.4% (with dividend)	SPY (+2.4%)
Flat (0%)	12%	+12% (distributions paid)	+12%	+1.4%	XYLD (+10.6%)
Bear (-10%)	12%	-10% (stock falls)	+2%	-8.6%	XYLD (+10.6%)

Conclusion:

Bull markets: SPY wins
Flat/sideways: XYLD wins
Bear markets: XYLD's income cushions (but still loses)

DTE Strategy Comparison: How Funds Choose Strike Prices

XYLD / QYLD (Systematic, 1% OTM)

Strike Selection:

Sells 1% out-of-the-money calls every month
At 30 DTE expiration
No IV optimization
Same formula every month, regardless of market

Example:

SPY at $450:
  XYLD sells $454.50 calls (1% OTM)
  Collect premium: ~1% per month
  If SPY closes above $454.50: Assignment, lose upside
  If SPY closes below $454.50: Collect premium, keep stock

DTE Mechanics:
  Every 3rd Friday expiration
  Sells 30-day calls on that Friday
  Very predictable strategy

Advantage: Simple, transparent, no surprises
Disadvantage: Leaves premium on table in high-IV markets

JEPI / JEPQ (Active, IV-Aware)

Strike Selection:

Adjusts strikes based on implied volatility (IV)
Higher IV = higher strikes (more upside for ETF)
Lower IV = lower strikes (safer for fund)
Typically 15-45 DTE

Example:

QQQ at $400:
  Normal market (IV 30%): Sell $408 calls (2% OTM)
  High IV market (IV 60%): Sell $412 calls (3% OTM)
  Low IV market (IV 15%): Sell $404 calls (1% OTM)

DTE Mechanics:
  Manager may vary expiration dates
  Might sell 30-day or 45-day depending on signals
  More flexible, potentially better economics

Advantage: Optimization for current market (higher yields in high IV)
Disadvantage: Less predictable, depends on manager skill

Covered Call ETF Performance: Historical Data

XYLD Performance vs SPY

Year | XYLD Return | SPY Return | XYLD Win/Loss | Key Factor
2023 | +25% | +24% | XYLD +1% | Flat-ish market, high yield helped
2022 | -16% | -18% | XYLD +2% | Bear market, yield cushioned decline
2021 | +26% | +29% | SPY +3% | Bull market, upside capped hurt XYLD
2020 | +32% | +32% | Neutral | Pandemic rally, calls got assigned
2019 | +28% | +31% | SPY +3% | Bull market, upside cap hurt

5-Year CAGR:
  XYLD: ~12-13% annually
  SPY: ~13-14% annually

Outperformance: SPY leads by ~1-2% annually over cycles

Interpretation: XYLD trades 1-2% of annual returns for consistent monthly distributions. Over long periods, SPY wins, but distributions make XYLD appealing for retirees.

JEPI Performance vs SPY

Year | JEPI Return | SPY Return | Key Difference
2023 | +15% | +24% | JEPI underperformed (bear year for calls)
2022 | -5% | -18% | JEPI buffered (income + put spreads helped)
2021 | +24% | +29% | JEPI lost upside (calls capped)

3-Year CAGR (2021-2023):
  JEPI: ~11% annually
  SPY: ~12% annually

Key: JEPI's active management doesn't beat SPY but reduces volatility

Tax Implications of Covered Call ETFs

Important: Distributions are taxed differently than capital gains.

Distribution Type Taxation

Distribution Type	Tax Treatment	ETF Examples
Ordinary Dividends	Taxed as income (ordinary rates, up to 37%)	Qualified dividends from stocks
Short-Term Capital Gains	Ordinary income rates	Covered call premiums (almost always)
Long-Term Capital Gains	Preferential rates (0%, 15%, 20%)	Rare from covered call ETFs
Return of Capital	Tax deferred (reduces basis)	Some distributions

The Reality:

Most XYLD/QYLD distributions are short-term capital gains, taxed as ordinary income—not preferential dividends.

XYLD Distributions (2024):
  $0.22/share monthly × 12 = $2.64/share annual distributions
  
Tax breakdown:
  ~$0.10/share = Qualified dividends (15% tax rate)
  ~$1.80/share = Short-term capital gains (37% tax rate)
  ~$0.74/share = Return of capital (tax deferred)

Tax bill on $10,000 XYLD in 37% bracket:
  $264 distributions × 37% = $97.68 owed (ordinary income tax)
  
If held in regular account: Very tax-inefficient

If held in Roth IRA: Tax-free! (preferred home for XYLD)
If held in Traditional IRA: Tax-deferred! (good too)

Best Practice: Hold covered call ETFs in tax-sheltered accounts (Roth IRA, Traditional IRA). The high distributions are wasted in taxable accounts.

How to Choose: XYLD vs JEPI vs QYLD

Decision Tree:

Q1: Do you want maximum yield?
└─ YES → XYLD (19-20% yield)
│        (Accept capped upside, broad diversification)
│
└─ NO → JEPI (9-10% yield)
         (Want income + some upside, active management)

Q2: Do you believe tech will outperform?
└─ YES → SPY / QQQ directly (don't use covered call ETF)
│        (Sell your own calls if you want income)
│
└─ NO (Flat/Bearish) → QYLD or XYLD
                      (Tech will be range-bound or down)

Q3: What's your time horizon?
└─ <3 years → XYLD/QYLD (distributions matter more)
│
└─ >10 years → SPY/QQQ directly (upside matters more)

Q4: Do you have IRA/Roth available?
└─ YES → XYLD in Roth (maximize tax-free distributions)
│
└─ NO (Taxable only) → JEPI (lower distributions = lower taxes)

Real Portfolio Examples

Example 1: Aggressive Income Investor (Age 65, Retired)

Goal: Generate $3,000/month from $200,000 portfolio

Portfolio Construction:

$100,000 in XYLD (in Roth IRA)
- Annual distributions: $100,000 × 0.20 = $20,000
- Monthly: ~$1,667
$100,000 in high-yield bonds (in taxable)
- Annual distributions: $100,000 × 0.05 = $5,000
- Monthly: ~$417

Total Monthly Income: $1,667 + $417 = $2,084 (falls short of $3,000 goal)

Alternative (More XYLD):

$150,000 in XYLD ($200 × 0.20 = $30,000 annual = $2,500/month)
$50,000 in bonds ($2,500 annual = $208/month)
Total: $2,708/month (close to goal)

Risk: Entirely XYLD if market crashes

Example 2: Balanced Growth + Income Investor (Age 50)

Goal: 7% annual return with some income

Portfolio Construction:

$50,000 SPY (growth, dividends reinvested)
$50,000 JEPI (balanced income + growth)
$50,000 Corporate Bonds (fixed income)

Expected Annual Return:

SPY: $50,000 × 0.11 (11% total return) = $5,500
JEPI: $50,000 × 0.09 (9% total return, mostly income) = $4,500
Bonds: $50,000 × 0.05 (5% yield) = $2,500
Total: $12,500 on $150,000 = 8.3% return

Income Distribution:

SPY: $0 (reinvested)
JEPI: $4,500 (income)
Bonds: $2,500 (income)
Total: $7,000 annual income ($583/month)

Example 3: Beginner (Age 30, Just Starting)

Recommendation: Don't use XYLD/QYLD yet.

Why?

35-year time horizon means SPY's 1-2% annual underperformance becomes huge
SPY at 10% annual returns = $10,000 → $452,000 in 35 years
XYLD at 8% annual returns = $10,000 → $147,000 in 35 years

Better Strategy:

Accumulate SPY/QQQ for 10-15 years
At age 45-50, when income becomes priority, then transition to XYLD
Use XYLD as retirement income machine, not growth vehicle

Covered Call ETF Risks and Gotchas

Risk 1: Capped Upside in Bull Markets

Problem: You underperform in strong bull markets.

SPY +25% year: XYLD +10% (miss +15%)

Mitigation: Only use if you believe market is flat/declining.

Risk 2: No Crash Protection

Problem: You own the stock outright; calls don't protect on downside.

XYLD owns SPY components
Market crashes 30%: XYLD falls ~30% (yield doesn't offset)

Mitigation: Use in portfolios also containing bonds or protective puts.

Risk 3: Tax Inefficiency in Taxable Accounts

Problem: Short-term capital gains = ordinary income tax rates.

$20,000 distributions at 37% tax bracket = $7,400 tax bill
After tax, return is much lower

Mitigation: Hold only in Roth/Traditional IRA.

Risk 4: Dividend Cut Risk

Problem: Distributions can decline in down markets.

2022 Bear Market:
  XYLD distributions fell 20% as market declined

Mitigation: Don't rely on distributions as guaranteed income.

Risk 5: Interest Rate Risk (Bonds in Portfolio)

Problem: If Fed raises rates, bond ETFs decline further.

JEPI contains corporate bond exposure
Rising rates = bond price declines

Mitigation: Be aware of rate environment before investing.

Covered Call ETF Alternatives

Instead of buying XYLD, consider:

Alternative	When to Use
DIY Covered Calls on SPY	You want full control, better tax efficiency, adjust strikes based on IV
Dividend Stocks + Sell Your Own Calls	You want to concentrate on best dividend payers (MSFT, JNJ, KO, etc.)
High-Yield Bond ETFs	You want stable income without equity risk
REIT ETFs	You want 4-6% yields with real estate exposure
Preferred Stock ETFs	You want 6-8% yields, lower volatility
Buy-Write ETFs (Hold T-bills, not stocks)	You want even lower upside cap, lower risk

The Bottom Line: Covered Call ETFs in 2025

XYLD/QYLD (Maximum Yield Strategy):

Best for: Retirees wanting passive high income
Best account: Roth IRA
Market conditions: Flat or declining
Expected return: 8-12% annually (mostly income)

JEPI/JEPQ (Balanced Strategy):

Best for: Income + growth balance, mid-market timing
Best account: Taxable or IRA
Market conditions: Neutral
Expected return: 9-11% annually

SPY/QQQ Directly (Growth Strategy):

Best for: Long-term investors, bull market believers
Best account: Taxable (long-term capital gains)
Market conditions: Bullish
Expected return: 11-13% annually

Key Takeaway:

Covered call ETFs aren't better than regular ETFs—they're different. They trade capital appreciation for consistent income. The "right" choice depends on your goals, time horizon, and market outlook.

If you're retired and want income, XYLD in a Roth IRA is excellent. If you're 30 and saving for the future, avoid it—buy SPY and sell your own calls if you want income.

The worst use case: Buying XYLD in a taxable account and paying short-term capital gains taxes. That's where covered call ETF returns disappear.

Use them strategically, and they're a powerful tool. Use them carelessly, and you'll wonder why you underperformed while paying hefty taxes.

Next Steps

Ready to add covered call ETFs to your portfolio?

First: Decide which ETF fits your goals using the decision tree above.

Second: Open a Roth IRA (if using XYLD) or taxable account (if using JEPI).

Third: Buy shares and set up automatic dividend reinvestment (if desired).

Fourth: Monitor quarterly. Are you hitting your income targets? Would DIY covered calls work better?

Covered call ETFs are excellent tools—when used for the right goals. Don't use them as a shortcut for growth. Use them for what they do best: passive, consistent, high income.

Best Covered Call ETFs for 2025: Yield vs Risk Analysis

What Are Covered Call ETFs? The Mechanics

How Covered Call ETFs Compare to Stock Dividends

The Best Covered Call ETFs: 2025 Comparison

1. XYLD – The S&P 500 Covered Call ETF

2. JEPI – JPMorgan Equity Premium Income ETF

3. QYLD – Covered Call ETF on NASDAQ 100

4. PCI – Payden iMAS Core Plus Fixed Income ETF

5. Other Notable Covered Call ETFs

Covered Call ETF Yields: The Real Numbers

Why Yields Are So High (19%+ for XYLD/QYLD)

Yield Breakdown by Market Condition

DTE Strategy Comparison: How Funds Choose Strike Prices

XYLD / QYLD (Systematic, 1% OTM)

JEPI / JEPQ (Active, IV-Aware)

Covered Call ETF Performance: Historical Data

XYLD Performance vs SPY

JEPI Performance vs SPY

Tax Implications of Covered Call ETFs

Distribution Type Taxation

How to Choose: XYLD vs JEPI vs QYLD

Real Portfolio Examples

Example 1: Aggressive Income Investor (Age 65, Retired)

Example 2: Balanced Growth + Income Investor (Age 50)

Example 3: Beginner (Age 30, Just Starting)

Covered Call ETF Risks and Gotchas

Risk 1: Capped Upside in Bull Markets

Risk 2: No Crash Protection

Risk 3: Tax Inefficiency in Taxable Accounts

Risk 4: Dividend Cut Risk

Risk 5: Interest Rate Risk (Bonds in Portfolio)

Covered Call ETF Alternatives

The Bottom Line: Covered Call ETFs in 2025

Next Steps