As volatility in the domestic stock market intensifies, individual investors are flocking to covered call exchange-traded funds (ETFs) that offer the potential for stable cash flow. There is a noticeable shift towards investment strategies that prioritize monthly distributions and volatility defense over short-term capital gains.
According to Koscom ETF Check on July 18, the 'KODEX 200 Covered Call Active' ranked second among retail investors in net purchases over the past week, with individuals buying a net total of 146.1 billion won. The 'TIGER Dividend Covered Call Active' also saw an inflow of 36.5 billion won, placing it ninth.
Other covered call ETFs also experienced steady buying interest. The 'KODEX U.S. Dividend Covered Call Active' ranked 11th with 30.2 billion won, while the 'TIGER U.S. Nasdaq 100 Target Daily Covered Call' was 13th with 27 billion won. The 'KODEX 200 Target Weekly Covered Call' and 'RISE Korea Value Up Weekly Fixed Covered Call' also made the top 20 in net purchases, indicating a broadening demand for covered call strategies rather than a concentration on specific products.
This trend is seen as a response to the recent extreme fluctuations in the stock market. According to the Korea Exchange, the KOSPI index has experienced daily fluctuations exceeding 4% on six out of 11 trading days this month. On July 13, the index fell to the 6,800 level, recording a daily volatility of -8.95%. The KOSPI 200 Volatility Index (VKOSPI) has remained above 80 on all but one day since July 10, reflecting ongoing market anxiety.
Covered call ETFs employ a strategy of holding underlying stocks while selling call options on those assets to secure option premiums. Asset management firms distribute regular dividends to investors from stock dividends and option sale profits. This strategy offers the advantage of potentially offsetting losses with option premiums, providing a relatively stable cash flow during sideways or bearish markets.
Experts believe that the effectiveness of covered call strategies may increase in the current market environment. Park Woo-yeol, a researcher at Shinhan Investment Corp, noted in a recent report that the structure of covered call ETFs distributing call option sale premiums on a monthly basis is a relatively recent development. He explained that covered call strategies are particularly effective during periods of market stagnation or mild downturns.
As investor interest grows, asset management firms are also accelerating the expansion of their related product lineups. In the past month, four new covered call ETFs have been launched. Kiwoom Investment Management introduced the 'KIWOOM KOSDAQ 150 Covered Call Active' ETF, which aims for both KOSDAQ 150 growth and monthly distributions. Hanwha Asset Management launched the 'PLUS 200 Covered Call Active' and 'PLUS 200 Weekly Covered Call Bond Mixed' ETFs. Korea Investment Trust Management also entered the market with the 'ACE High Dividend Plus Covered Call Active' ETF.
However, covered call ETFs are not advantageous in all market conditions. Due to the nature of the option selling strategy, they may not fully benefit from strong bull markets, potentially resulting in lower returns compared to standard equity ETFs. While they can excel in highly volatile environments, investors are advised to consider their investment goals and market conditions when selecting products, as potential returns may be limited in sustained bull markets.
* This article has been translated by AI.
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