Beyond Standard Income Strategies: How Covered Call ETFs Deliver Double-Digit Yields

The covered-call approach has become a cornerstone strategy for income-focused portfolio managers seeking consistent returns regardless of market direction. Unlike traditional dividend investing, this method works equally well in rising, falling, or sideways-moving markets. Several ETFs have packaged this strategy into accessible vehicles, with yields ranging from single digits to nearly 90%. But not all covered-call funds deliver what they promise. Let’s examine what makes this strategy tick and evaluate four leading products in the space.

Understanding the Covered-Call Advantage

When speculators buy call options to amplify their bets on individual stocks, income-oriented investors can capitalize by taking the opposite position. A call option grants the buyer the right to purchase shares at a predetermined price within a set timeframe, with the seller receiving a payment (“premium”) for granting that right.

By selling covered calls against stocks already in our portfolio, we receive that premium upfront. The beauty of this approach lies in its risk-reward structure: if shares get “called away” at the strike price, we realize a profit on our original position. If the stock never reaches that strike price and the buyer lets the option expire, we keep both the premium and our shares. This dual-win scenario functions effectively across different market cycles.

Several products now handle the operational complexity of this strategy automatically. Let’s evaluate four covered-call focused ETFs that have gained traction among yield-seeking investors.

RDVI: Layered Income Strategy With Mixed Results

FT Vest Rising Dividend Achievers Target Income ETF (RDVI) combines two income approaches: dividend growth exposure plus covered-call writing. Rather than following the stringent requirements of Dividend Aristocrats (25+ years of consecutive increases), RDVI targets the broader Nasdaq US Rising Dividend Achievers Index, which focuses on stocks showing dividend expansion over three and five-year periods.

The twist: RDVI purchases positions in this dividend-growth index but writes calls against the traditional S&P 500—not the underlying holdings themselves. Theoretically, this cross-index approach offers diversification benefits. In practice, RDVI has struggled to differentiate itself from its benchmark. The fund’s performance has lagged materially, and its return profile mirrors its underlying index too closely. For income investors expecting separation from core-market movements, RDVI hasn’t delivered the distinct advantage this strategy should provide.

Current yield: 8.2%

EIPI: Sector-Specific Active Management Pays Off

FT Energy Income Partners Enhanced Income ETF (EIPI) represents a rare breed—an actively managed, sector-concentrated covered-call fund. Since launching in 2024, this energy-sector vehicle has demonstrated surprising strength.

The fund maintains concentrated positions in classic energy holdings: Enterprise Products Partners (EPD), Kinder Morgan (KMI), and Exxon Mobil (XOM). But EIPI’s managers don’t write calls against a broad energy index. Instead, they maintain roughly 50 active option positions on individual stock holdings, a significantly higher count than traditional index-based strategies employ.

Despite a modest yield relative to other covered-call alternatives, EIPI has achieved two notable outcomes: outperforming its energy sector benchmark and delivering smoother return patterns with reduced volatility. This active approach, while requiring more intensive management, suggests that tactical flexibility in call-writing decisions can meaningfully enhance results.

Current yield: 7.3%

RYLD: Small-Cap Volatility Fails to Drive Returns

Global X Russell 2000 Covered Call ETF (RYLD) applies covered-call mechanics to small-cap equities through the Russell 2000 index. The premise is compelling: small-cap stocks’ elevated volatility translates into higher option premiums, theoretically generating superior income opportunities.

RYLD maintains a straightforward structure—holding the Global X Russell 2000 ETF (RSSL) and systematically writing calls against it. However, the execution has fallen short. While RYLD successfully caps downside during market corrections, it equally caps upside during rallies. The fund underperforms its underlying benchmark by a margin too substantial to justify the strategy’s overhead costs. The tradeoff between protection and growth hasn’t balanced in investors’ favor.

Current yield: 12.1%

NVDY: Extraordinary Yield Comes With Extraordinary Risk

YieldMax NVDA Option Income Strategy (NVDY) represents the most aggressive version of this approach: buying NVIDIA shares and selling covered calls against them, supplemented with call spreads (buying lower-strike calls while selling higher-strike calls) to generate additional income.

The results look stunning on paper—an 88.9% yield that virtually promises monthly payouts rivaling annual Treasury returns. Yet NVDY consistently underperforms NVIDIA stock itself, which remains the core holding. This underperformance reveals the strategy’s fundamental weakness: sustainable returns depend entirely on NVIDIA’s share price climbing indefinitely. Should the stock consolidate or correct, the income stream may not remain viable. The funds’ managers are forced to maintain aggressive option positioning to justify the headline yield, creating potential vulnerability if market conditions shift.

Current yield: 88.9%

The Timing Challenge With Forced Trading

Funds managing covered-call and options-income strategies face an inherent constraint: as income-generating vehicles, they must continuously trade options regardless of market conditions. This mandate creates specific risks:

When call options are exercised, core positions get sold away, forcing awkward re-entry decisions and potentially triggering outsized tax consequences from overtrading. When put options are sold unsuccessfully, investors may receive share positions they neither wanted nor could afford, particularly during volatile market dips.

Key Takeaways

Covered-call ETFs offer genuine income advantages for portfolio diversification, particularly the SPY covered-call model adapted by various products. However, results vary dramatically based on underlying holdings, option-writing discipline, and market environment. EIPI’s active management approach and focused sector exposure have delivered results that justify higher scrutiny, while strategies overly reliant on continued price appreciation—like NVDY—carry elevated risk. For most investors, the covered-call space rewards careful selection over blind yield-chasing.

Successful participation requires understanding which strategies align with your market outlook and which funds maintain operational discipline rather than simply maximizing headline yields at the expense of long-term portfolio health.