Monthly Covered Call Commentary

The Global X Research Team is pleased to announce the release of its Monthly Covered Call Report, featuring the premium and distribution values attained by its roster of covered call funds in June of 2024. The key takeaways below, as well as those highlighted within the report, recap some of the most pivotal undertakings to have taken place across the markets during the June roll period. They outline their influence over the option pricing environment and help substantiate changing investor sentiments as characterized by specific market indicators.

Covered Call Report – June 2024 Key Takeaways

• At the onset of the June roll period for the Global X Covered Call product suite, all four of the major domestic equity indices’ primary volatility gauges were trending near post-pandemic lows.¹ To wit, the Cboe Volatility Index (VIX) and the Cboe Nasdaq 100 Volatility Index (VXN) ascended during the term stretching from May 17th to June 21st.² The positive relationship that these fear gauges typically share with premium values experienced somewhat of a decoupling during the June roll, however, with a material number of call positions closing on the market’s triple-witching date, when equity and index options, as well as equity futures, expired simultaneously.³
• Heading into the options roll date on June 21st, bullish sentiment underscored by a large number of call positions, particularly on the S&P 500, may have been partly to credit for what was, on a relative basis, still a backdrop lacking in volatility.⁴ Furthermore, as this balance of call positions proceeded to reset, altering sentiment outlined by a more balanced mix between puts and calls probably influenced call premiums to check in lower, on average, month to month.⁵
• As a product of the second-quarter’s triple witching event, the ratio of open interest on put options relative to call options associated with many of the major domestic indices appreciated to levels not seen previously in 2024.⁶ In conjunction with fewer notional dollars being tied to specific option strike prices being present on the market, this more-balanced mix of sentiment creates an opportunity for markets to trade with wider volatility in the coming weeks. That said, the chain of option positions that develops over the ensuing weeks will help provide additional color on this narrative.