2 Covered Call ETFs Delivering Big Passive Income Today

By Rich Duprey Published Jul 13, 10:56AM EDT

Key Points in This Article:

Covered call ETFs generate high yields by selling call options on stock portfolios, appealing to income-focused investors.
These ETFs offer monthly distributions and downside protection, though they may limit upside in strong market rallies.

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2 Covered Call ETFs Delivering Big Passive Income Today — © gotcredit / Flickr

In today’s low-yield environment, investors seeking consistent passive income are turning to covered call exchange-traded funds (ETFs). These innovative funds combine the stability of owning a diversified portfolio of stocks with the income-generating power of selling call options, offering higher yields than traditional dividend stocks.

By writing call options on their holdings, these ETFs collect premiums, boosting monthly distributions while providing some downside protection in volatile markets. This strategy appeals to retirees and income-focused investors who prioritize steady cash flow over aggressive capital growth.

While covered call ETFs may cap upside potential during strong market rallies, their ability to deliver double-digit yields makes them a compelling choice for those seeking reliable income. With many ETFs employing this strategy, two stand out for their high yields, tax efficiency, and strong performance, offering investors a robust way to enhance portfolio income in today’s market.

JPMorgan Equity Premium Income ETF (JEPI)

The JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) is a top-tier option for investors seeking substantial passive income through a covered call strategy. JEPI holds a portfolio of low-volatility, large-cap U.S. stocks, primarily from the S&P 500, and allocates up to 15% of its assets to equity-linked notes (ELNs), which replicate the payoff of a covered call strategy on the S&P 500.

This approach delivers an impressive 8.4% distribution yield, paid monthly, ideal for retirees and income-focused investors. In 2024, JEPI’s active management achieved a 10.2% annualized return over three years, outperforming many peers in its category. Its expense ratio of 0.35% remains competitive, though distributions are taxed as ordinary income, which may reduce tax efficiency for some investors.

JEPI’s focus on defensive, high-quality stocks minimizes volatility, and the ELN structure allows participation in some market upside, unlike traditional covered call ETFs that cap gains more strictly. With $41 billion in assets under management, JEPI offers significant liquidity and scale, ensuring ease of trading.

As market volatility continues to drive higher option premiums, JEPI’s disciplined strategy and diversified holdings position it to deliver consistent, high-yield income. For investors seeking a balance of steady cash flow and modest growth potential, JEPI stands out as a reliable choice in the covered call ETF space, particularly in uncertain economic climates.

NEOS S&P 500 High Income ETF (SPYI)

The NEOS S&P 500 High Income ETF (CBOE:SPYI) is a standout for investors seeking high-yield passive income with enhanced tax efficiency. SPYI holds individual S&P 500 stocks and sells index call options, generating a robust 12.1% distribution yield, paid monthly.

By using Section 1256 contracts, SPYI offers a tax-advantaged 60/40 split (60% long-term, 40% short-term capital gains), which is a significant benefit compared to ETFs that distribute only ordinary income. SPYI also uses active tax-loss harvesting, and some distributions are classified as return of capital, which lowers immediate tax liability by reducing the investment’s cost basis.

Launched in August 2022, SPYI has delivered a 42.8% cumulative return, surpassing the CBOE S&P 500 BuyWrite Index. Its 0.68% expense ratio is slightly higher but justified by its superior performance and tax efficiency. SPYI’s strategy balances high income with some capital appreciation, making it ideal for volatile markets. Its active management optimizes option selection to maximize premiums while retaining exposure to S&P 500 upside.

As AI-driven trading and market uncertainty boost demand for income strategies, SPYI’s high yield, tax advantages, and strong returns make it a compelling choice. With growing assets and a focus on investor-friendly tax treatment, SPYI appeals to those diversifying portfolios with reliable, high-income ETFs, offering a powerful tool for passive income generation in today’s dynamic market environment.

About the Author Rich Duprey →

After two decades of patrolling the dark corners of suburbia as a police officer, Rich Duprey hung up his badge and gun to begin writing full time about stocks and investing. For the past 20 years he’s been cruising the markets looking for companies to lock up as long-term holdings in a portfolio while writing extensively on the broad sectors of consumer goods, technology, and industrials. Because his experience isn’t from the typical financial analyst track, Rich is able to break down complex topics into understandable and useful action points for the average investor. His writings have appeared on The Motley Fool, InvestorPlace, Yahoo! Finance, and Money Morning. He has been interviewed for both U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, and USA Today.