ProShares launches S&P 500 daily covered call ETF

Jan 2nd, 2024 | By | Category: Equities

ProShares has introduced a new ETF in the US that delivers an innovative covered call strategy on US large-cap equities.

ProShares launches S&P 500 daily covered call ETF

Michael L. Sapir, CEO of ProShares.

The ProShares S&P 500 High Income ETF (ISPY US) has been listed on Cboe BZX Exchange with an expense ratio of 0.55%.

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, covered call strategies have generally outperformed their 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.

In terms of ISPY, the fund tracks the S&P 500 Daily Covered Call Index which combines a long position in the S&P 500 with a short position in standardized S&P 500 call options. The fund invests directly in S&P 500 stocks while utilizing swap agreements for the short call option exposure.

Notably, the index utilizes a daily covered call strategy by selling call options with one day to expiration each day. The options are written out-of-the-money with the strike prices determined by a function of S&P 500 and Cboe VIX index levels.

ISPY differs from traditional covered call ETFs which sell monthly call options each month. According to ProShares, by utilizing daily options, ISPY exhibits lower timing risk compared to its monthly options-based counterparts, thereby striking a more favourable balance between the pursuit of income and the potential for long-term equity returns.

Michael L. Sapir, CEO of ProShares, commented: “We have seen substantial demand for income beyond conventional sources. ISPY, the first ETF powered by a daily call options strategy, offers investors the potential to earn high income and capture a long-term total return similar to that of the S&P 500. We believe that ISPY will be an attractive alternative to popular covered call ETFs, where investors may sacrifice long-term return potential to strive for high income.”

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