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Monthly Covered Call Commentary

Jun 14, 2024

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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 May 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 May 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 – May 2024 Key Takeaways

  • Extending from April 19th to May 17th, the May roll period for the Global X Covered Call suite of products was one characterized by a broad market recovery. At its onset, the S&P 500 and Nasdaq 100 bounced off their two- and three-month troughs, respectively, and proceeded to appreciate in the high single-digit percentage vicinities.1 Investor confidence was spurred by tapering U.S. inflation data and solid first-quarter corporate earnings. In fact, amongst the some 93% of all S&P 500 constituents to have reported by May 17th, roughly 78% of them announced a positive earnings surprise.2
  • Increasing optimism surrounding a potential Federal Reserve rate cut and U.S market price appreciation in the second half of 2024 led volatility, as denoted by all four of the major domestic equity indices’ primary volatility gauges, to recede to levels rarely seen in the post-pandemic environment.3 The Cboe Volatility Index (VIX) and the Nasdaq 100 Volatility Index (VXN), in particular, established lows of 11.91 and 15.77, respectively, on May 17th. This signal of confidence and bullish sentiment put pressure on the premium values that were attained by the covered call suite of funds.
  • The Cboe Russell 2000 Volatility Index indeed represents one of the abovementioned temperature gauges to have tested post-pandemic lows during the roll period. However, the Global X Russell 2000 Covered Call ETF (RYLD) still retrieved a premium strong enough to allow it to distribute up to its cap. The undertaking helped illustrate how monetizing even depleted volatility within the small-cap space can promote the potential for higher returns within a portfolio. RYLD has now distributed up to its cap in each of the first five months of 2024.

Category: Articles

Topics: Income Strategies

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Investing involves risk, including the possible loss of principal. Concentration in a particular industry or sector will subject the Funds to loss due to adverse occurrences that may affect that industry or sector. Investors should be willing to accept a high degree of volatility in the price of the fund’s shares and the possibility of significant losses.

The Funds engage in options trading. An option is a contract sold by one party to another that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed upon price within a certain period or on a specific date. A covered call option involves holding a long position in a particular asset and writing a call option on that same asset with the goal of realizing additional income from the option premium. By selling covered call options, the funds limit their opportunity to profit from an increase in the price of the underlying index above the exercise price, but continues to bear the risk of a decline in the index. A liquid market may not exist for options held by the fund. While the fund receives premiums for writing the call options, the price it realizes from the exercise of an option could be substantially below the indices current market price.

Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.

Carefully consider the funds’ investment objectives, risks, and charges and expenses before investing. This material must be preceded or accompanied by a current full or summary prospectus. Please read the prospectus carefully before investing.

Global X Management Company LLC serves as an advisor to Global X Funds. The Funds are distributed by SEI Investments Distribution Co. (SIDCO), which is not affiliated with Global X Management Company LLC or Mirae Asset Global Investments. Global X Funds are not sponsored, endorsed, issued, sold or promoted by Standard & Poors, MSCI, Dow Jones, NASDAQ, or Cboe nor do these companies make any representations regarding the advisability of investing in the Global X Funds. Neither SIDCO nor Global X is affiliated with Standard & Poors, MSCI, Dow Jones, NASDAQ, or Cboe.