Too Good to Be True? Here's the Truth About Covered Call ETFs
Jul 06, 2025
🕒 Reading time: 4 minutes
Hi Wealth Builders! I'm Ben — Head Coach with Steve at Call to Leap.
Imagine receiving a passive income check every single month just for investing in an ETF. Covered call ETFs promise exactly that, with some boasting dividend yields over 10%. But before you jump in headfirst, let’s explore whether these high-yield investments align with your financial goals.
💡 What Exactly Is a Covered Call ETF?
A covered call ETF is an actively managed fund that buys a basket of stocks and writes call options on them. This strategy generates income (option premiums) that gets passed on to investors as dividends, allowing you to benefit from covered calls without having to trade options yourself.
📈 When Covered Call ETFs Shine (and When They Don’t)
Covered call ETFs can be powerful — but only in the right conditions.
✅ Best case: Sideways or slightly declining markets. Prices stay stable, the ETF collects premiums, and retains the stocks.
⚠️ Worst case: Bull markets with fast-rising prices. The ETF’s gains are capped, causing it to underperform the broader market. The last 10 years were not the time to go heavy on covered call ETFs.
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🧐 2 Covered Call ETFs to Consider
There are many ETFs out there. Here are some (relatively) low-cost contenders from reputable sources:
1️⃣ JEPI (JP Morgan Equity Premium Income ETF): Invests in low-volatility S&P 500 stocks and writes options, with an 11% yield and monthly payouts.
2️⃣ JEPQ (JP Morgan Nasdaq Equity Premium Income ETF): Similar to JEPI, but tracks the NASDAQ 100 with a high 14% yield, paid monthly.
⭐ Both JEPI and JEPQ have relatively low 0.35% expense ratios, compared to much more expensive choices in the category.
❓ Are Covered Call ETFs Right for You?
High yields are tempting, but ask yourself:
✅ Are you near or in retirement and looking for steady income? Covered call ETFs can fit well.
❌ Are you young with a long time horizon? You might be better served focusing on growth and broad index funds like the S&P 500, which have historically outperformed covered call ETFs over long periods.
Final Word:
Covered call ETFs can be a strategic tool for income generation, but they aren’t a magic bullet for wealth building. Consider your investment timeline, risk tolerance, and market outlook before adding them to your portfolio.
— Ben, for the Call to Leap Team
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Disclaimer:
The following article is strictly the opinion of the author and is not to be considered financial/investment advice. CTL Community LLC and the author of this article do not claim to be a registered financial advisor (RIA) or financial advisor. Please visit our terms of service and privacy policy before reading this article. Call to Leap may earn affiliate commissions from the links mentioned. Call to Leap is part of an affiliate network and receives compensation for sending traffic to partner sites such as ImpactRadius, CardRatings, MyBankTracker, and more.
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