Real Yield

USA

Global X lists Russell 2000 covered call ETF

Mirae-owned Global X is listing a new alternatives ETF that brings the familiar covered call strategy to the Russell 2000. The Global X Russell 2000 Covered Call ETF (RYLD) will track a theoretical portfolio that holds the Russell 2000 while selling one-month at-the-money covered call options.

Each option written will: 

1. have an exercise price at or above the prevailing market price of the index
2. be traded on a national securities exchange;
3. be held until expiration and be settled based on the final settlement price of the option;
4. expire on its date of maturity; 
5. only be subject to exercise on its expiration date; and
6. be settled in cash.

Those buying the options that RYLD sells can receive a cash payment from equal to the difference between the value of the Russell 2000 and the exercise price of the option if the value of the option on the expiration date is above its exercise price. 

The fund will perform relatively well in bear markets, the prospectus says, as the yield from selling options will make up for shortfalls. However, when the equity market is rallying rapidly, the product will likely underperform.