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 October 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 October 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 – October 2024 Key Takeaways

• In the days following the Federal Open Market Committee‘s decision to reduce the federal funds rate some 50 basis points on September 18th, to a range of 4.75%-5.00%, data points were released within the U.S. that gave investors confidence in the health of its economy. Specifically, on October 4th, a Nonfarm Payroll Employment report showed that the nation had added a better-than-expected 254,000 jobs in the month of September.¹ The news was coupled with softening inflation data that would be released in the following week, as the Consumer Price Index checked in at 2.4%, versus 2.5% in the month of August.² The backdrop supported gains for all four of the major domestic equity indices, with the S&P 500, Nasdaq 100, Dow Jones Industrial Average, and Russell 2000 experiencing total returns of 2.7%, on average, during the Global X Covered Call Funds’ October roll period from September 20th to October 18th.³
• Reflecting upon a running theme that is necessarily prominent within this report, owing to the positive relationship that exists between option premiums and volatility, market volatility was supported by a series of factors during the October roll period, including geopolitical events that promoted instability within the oil markets and on equities. The abovementioned economic data points, while encouraging for growth, also led to some widely oscillating stock prices, as investors re-evaluated how monetary policy may influence the markets moving forward. All this led the Cboe Volatility Index (VIX) to hover around the 18.7 level over the course of the roll period, and option premiums collected by the Global X Covered Call product suite to increase compared to the last roll date, in nearly all instances.⁴
• The value of call options typically carries a positive relationship with interest rates much like it does with volatility. With rates and volatility trending in opposite directions during the October roll period, however, the stronger correlation with volatility was put on display. Economic resilience may continue to promote an elevated rate environment moving forward, which would potentially curtail the impact of lower rates on premium values. In the interim, elevated volatility may continue to promote return potential for the Global X Covered Call suite.