Global X rolls out Russell 2000 covered call ETF

Apr 29th, 2019 | By | Category: Alternatives / Multi-Asset

New York-based Global X has expanded its suite of covered call ETFs with a new fund targeting the small-cap segment of the US equity market.

Global X rolls out Russell 2000 covered call ETF

Covered call strategies seek to provide enhanced income through the writing of call options.

The Global X Russell 2000 Covered Call ETF (RYLD US) has listed on Cboe BZX with an expense ratio of 0.60%.

A covered call is an options strategy whereby an investor holds a long position in an asset and sells or “writes” call options on that same asset in an attempt to generate more income (the additional income from option premium) than the asset would otherwise provide on its own from dividends or other distributions.

Historically, during bear markets, range-bound markets and modest bull markets, this type of covered call strategy has generally outperformed its underlying securities. However, during strong bull markets, when the underlying securities may frequently rise through their strike prices, covered call strategies historically have tended to lag.

The fund is linked to the Cboe Russell 2000 BuyWrite Index which consists of exposure to the Russell 2000 Index while writing at-the-money monthly call options on the same index.

The Russell 2000 Index is a well-known proxy for the US small-cap market which is defined as companies with market capitalizations between $300 million and $2 billion.

Small-cap firms have historically exhibited increased volatility and returns relative to mid- and large-caps. This means the fund is likely to generate higher income than its large-cap peers as the size of the option premium tends to be positively correlated with volatility in the underlying asset.

The fund pays distributions to investors on a monthly basis.

Rohan Reddy, Research Analyst at Global X, commented, “We are thrilled to be able to offer investors the opportunity to utilize a covered call strategy on the premier small-cap benchmark index, the Russell 2000. We believe RYLD is a great complement to our other covered call offerings, as investors continue to look for alternative sources of income.”

Global X offers two other funds within its covered call ETF suite. The $500m Global X Nasdaq 100 Covered Call ETF (QYLD US) and $100m Global X S&P 500 Covered Call ETF (HSPX US) implement covered call strategies relative to the Nasdaq 100 and S&P 500 indices, respectively. Each fund also comes with an expense ratio of 0.60%.

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