Covered Call ETF Strategies for $100 Million Portfolios

FG Capital Advisors designs covered call ETF programs to generate consistent option premium income on a $100 million equity base. With structured strike selection and diversification, portfolios can aim for monthly distributions between $800,000 and $1.2 million, while maintaining clear risk controls.

Current Opportunity in Option-Writing ETFs

ETFs that write call options on equity indices can enhance yield in stable to modestly volatile markets. By collecting option premiums, these vehicles offer an income stream alongside partial upside participation in the underlying index.

Core Elements of the Strategy

  • Option Writing: Sell call options against ETF holdings at predetermined strike levels.
  • Premium Collection: Distribute received premiums as monthly or quarterly payments.
  • Strike Governance: Adjust strike distances to balance income goals with equity growth potential.
  • Roll Procedures: Systematically close near-expiry positions and open new ones to sustain premium flow.

Estimated Income Ranges

Historical yield bands for covered call ETFs span 8 percent to 12 percent annually. On $100 million equity, that equates to:

  • 8 percent yield = $8 million per year (~$667,000 per month)
  • 10 percent yield = $10 million per year (~$833,000 per month)
  • 12 percent yield = $12 million per year (~$1 million per month)

More aggressive strike selections can lift yields beyond 12 percent but may limit participation in rallies.

Sample Allocation Framework

A representative $100 million allocation could be structured as follows:

  1. NASDAQ-100 Call-Write ETF (40 percent): Focused on high-premium tech exposure.
  2. S&P-500 Call-Write ETF (30 percent): Broad market diversification.
  3. Equity Collar ETF (20 percent): Paired call sales with protective puts for downside buffer.
  4. Sector/Regional Call-Write (10 percent): Target specific industries or markets for yield enhancement.

Risk Mitigation Techniques

  • Protective Puts: Purchase put options to cap potential losses on the underlying.
  • Collar Construction: Combine sold calls with bought puts to define a performance band.
  • Strike Adjustment: Shift strikes outward when volatility rises, inward when markets cool.
  • Diversification: Spread allocations across multiple call-write vehicles to limit concentration risk.

Implementation Steps

  1. Review ETF prospectuses for option roll mechanics and fee schedules.
  2. Establish custody and brokerage arrangements for option-writing capacity.
  3. Deploy initial capital according to the agreed allocation.
  4. Monitor option expirations, premium flows and underlying index levels monthly.
  5. Conduct quarterly reviews to adjust allocations, strikes and hedges based on performance.

Frequently Asked Questions

What are the primary fees?
Typical expense ratios run from 0.60 percent to 1.20 percent, inclusive of option trading costs.

How is income taxed?
Premium distributions may be treated as ordinary income. Tax treatment varies by jurisdiction; professional guidance is advised.

What risks should investors consider?
Upside cap risk, early option exercises, tracking error and option market liquidity are key considerations.

Will yields fluctuate?
Yes. Distributions depend on option premiums, which reflect market volatility and rate expectations.

Disclaimers & Considerations

FG Capital Advisors provides advisory services only. Covered call ETF strategies involve market, option, model and manager-selection risks. Past distribution rates do not guarantee future results.

Investors should obtain independent legal, tax and financial advice before allocating capital to these strategies. Option-writing may reduce upside participation in rising markets and does not eliminate downside risk.