Covered call exchange traded funds (ETFs) are utilized by investors to maximize returns in sideways markets. These ETFs provide exposure to stock portfolios while generating yield through selling calls on core holdings. If stock prices exceed the call's exercise price, the stocks can be 'called away,' potentially causing the fund to repurchase the stocks at higher prices. Investing in covered call ETFs may lead to near-term outperformance during stable or declining market cycles, but there are significant downsides associated with this strategy that investors should consider.
Covered call ETFs provide exposure to a portfolio of stocks and generate yield by selling calls on core holdings, but have risks if stocks surge.
Investors expecting sideways or slightly declining markets may benefit from covered call ETFs, as the additional yield may offset potential losses.
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