ProShares has introduced the ProShares Russell 2000 High Income ETF (ITWO US), expanding its suite of alternative income ETFs to include a fund focused on the US small-cap equity market.

Michael L. Sapir, CEO of ProShares.

Listed on the Cboe BZX Exchange, ITWO employs a daily covered call strategy based on the Russell 2000 Index.

A covered call strategy involves holding a long position in an asset while selling call options on that asset to generate additional income from option premiums. This strategy has historically outperformed in bear, range-bound, and modest bull markets, although it may lag in strong bull markets when the underlying securities surpass their strike prices.

ITWO tracks the Cboe Russell 2000 Daily Covered Call Index, which combines a long position in Russell 2000 stocks with a short position in daily out-of-the-money call options on the Russell 2000 representing a target notional value of 100% of the fund’s assets.

The strike prices for these options are determined by the Russell 2000’s current level and implied volatility. The fund directly invests in Russell 2000 stocks and uses swap agreements for its short call option exposure.

Unlike traditional covered call strategies that sell options on a monthly basis, ProShares’ daily approach aims to reduce timing risk, balancing income generation with the potential for long-term equity returns.

Michael L. Sapir, CEO of ProShares, stated, “Covered call strategies are popular for their high yield potential, but conventional covered call ETFs often sacrifice total return for income. ITWO, the first Russell 2000 ETF using a daily call options strategy, enhances our suite of innovative, first-to-market offerings in the covered call space. The fund provides investors with the potential for both high income and long-term total returns similar to those of the Russell 2000 Index.”

This new ETF joins ProShares’ existing alternative income line-up, including the ProShares S&P 500 High Income ETF (ISPY US) and ProShares Nasdaq 100 High Income ETF (IQQQ US), which apply similar daily covered call strategies to the S&P 500 and Nasdaq 100 indices.

Each of the three ETFs comes with an expense ratio of 0.55%.