Why Covered Call ETFs Keep Disappointing Investors in 2024

The covered call ETF market has exploded over the past two years. Assets under management skyrocketed from $18 billion in early 2022 to approximately $80 billion by July, reflecting massive investor appetite for these income-generating strategies. Yet despite their surging popularity and promise of steady returns, these funds are quietly underperforming traditional stock ETFs—and the gap is getting worse.

The Allure vs. Reality

Funds like JPMorgan’s Equity Premium Income ETF (JEPI), now the largest actively managed ETF in the U.S., market themselves with an attractive pitch: capture S&P 500-like gains while enjoying bond-style income and lower volatility. It sounds too good to be true. And increasingly, it is.

A covered call ETF implements a straightforward strategy—it holds stocks while simultaneously selling call options against them, collecting premiums in the process. The mechanics are simple: each month, the fund writes options at a predetermined strike price. If the stock stays below that level, the premium becomes pure profit. If the stock surges above it, the shares get “called away,” capping your upside.

The appeal is obvious: passive income without lifting a finger. But this is where investor expectations diverge sharply from actual performance.

The 2024 Performance Gap Tells the Real Story

Year-to-date results reveal the uncomfortable truth. The S&P 500 Index has climbed 14.5%, yet the Cboe’s S&P 500 Buywrite Index ($BXM) has managed only 10.6% gains. JEPI, meanwhile, sits at a paltry 5.8%.

The damage is even more severe on the tech side. The Nasdaq-100 Index has advanced 10.6% this year, but the Global X Nasdaq-100 Covered Call ETF (QYLD) has barely moved, posting less than 1% returns. That’s roughly a 9-percentage-point underperformance in just one year.

What’s Really Happening: Selling Volatility, Not Buying Safety

Here’s the uncomfortable reality that fund marketing materials won’t emphasize: covered call ETFs aren’t pursuing an “income strategy”—they’re actually selling volatility. This distinction matters enormously.

When volatility is subdued and markets move sideways, the premium income cushions losses and the strategy works beautifully. But when markets tank and volatility spikes—exactly when investors need downside protection—these funds crumble. The modest premium collected fails to offset the decline in underlying holdings. You get slammed on both sides: falling stock prices plus trapped capital that could have participated in future gains.

In periods of rapid market advance, the opportunity cost is brutal. Call options are exercised regularly, shares are constantly called away, and the fund never captures meaningful upside rallies.

A Better Path for Long-Term Wealth Building

For investors seeking consistent income without sacrificing long-term growth, dividend-focused strategies deserve serious consideration. Dividend-paying stocks and dividend-concentrated ETFs offer several advantages:

• Actual capital appreciation: You participate fully in bull markets without artificial caps on gains
• Downside resilience: Established dividend payers typically hold value better during corrections than call-selling strategies
• Compound growth: Reinvested dividends compound meaningfully over decades
• Transparency: You know what you own and why, not obscured by complex options mechanics

The harsh lesson? Covered call ETFs are tactical plays for specific market conditions—flat to modestly bullish environments with low volatility. They’re not buy-and-hold vehicles for the average investor planning to build wealth over 20 or 30 years. The cumulative drag from capped upside, higher fees, and repeated volatility losses compounds into real wealth destruction.

When income and growth both matter, traditional dividend strategies simply offer better risk-adjusted returns. That’s not sexy marketing material, but it’s the math.