QQQI ETF Review – NEOS Nasdaq-100 High Income ETF

QQQI is an income ETF from NEOS that utilizes covered call options on the Nasdaq 100 to pay large monthly distributions. I review it here.

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In a hurry? Here are the highlights:

1. QQQI writes call options on the Nasdaq 100.
2. QQQI launched in 2024, has since amassed about $14 billion in assets, and costs 0.68%.
3. The Nasdaq 100 is poorly diversified.
4. QQQI has a high distribution yield near 14% that is paid monthly, making it attractive to income investors.
5. QQQI's yield can vary.
6. That yield is basically an “illusion” and is usually your own capital being returned to you.
7. QQQI claims to recapture some upside lost with writing covered calls by occasionally buying calls, but this is mostly just marketing baloney, and successfully timing the market cannot be done consistently.
8. As we would expect, QQQI has lagged both its underlying index and a well-diversified multi-asset portfolio on virtually all metrics and outcomes, including the generation of “income.”
9. Covered calls per se negatively impact expected returns, mean reversion of equities (recovery), and skewness. These negative attributes are exacerbated as the time period widens. Plainly, covered calls are not good for long term investors, even those wanting “income.” These characteristics are also worsened by trying to ratchet up the yield of the fund, and are not offset by the fund's “income.”
10. The theoretical shortcomings show up empirically in live fund data (and even before necessarily greater taxes, trading costs, and fees).
11. Covered calls are expected to outperform exclusively during brief periods of truly sideways or mildly declining markets, which are inherently rare environments.
12. Covered call products exploit cognitive errors such as loss aversion and mental accounting bias and the naivete of unsophisticated, income-oriented investors who are least likely to know how to properly evaluate what they're buying.
13. Covered calls do not improve safe withdrawal rates and do not somehow allow for earlier retirement.
14. Generally speaking, covered call fund yields are, at best, you guessed it, irrelevant.
15. Share count is also irrelevant, and selling shares in a down market shouldn't be feared, as we only care about the value of those shares and what they can buy us.
16. NEOS has a paid promotion program.
17. Woefully uninformed finfluencers push these high-yield, high-fee products on social media.
18. One does not need an “income” product to generate income. Ironically, using one is typically objectively inferior from both a risk perspective and a tax perspective.

QQQI ETF Quick Stats Table

Before we dive in, here are the quick stats on QQQI:

Introduction – What Is QQQI and How Does It Work?

QQQI is the NEOS Nasdaq-100 High Income ETF. It launched in early 2024 and has since amassed an impressive $14 billion in assets, making it one of the fastest-growing funds in the space. QQQI's older brother for the S&P 500 is SPYI, which launched in late 2022. NEOS Investments was founded in 2022 by option veterans Garrett Paolella and Troy Cates.

If you've read my review of JEPQ, this post will feel very familiar, as these funds have basically the same strategy at their core – writing covered call options on the Nasdaq 100 Index to deliver high monthly distributions. There are some subtle implementation differences that I'll highlight in detail below, but broadly speaking, they are very similar in approach.

QQQI straightforwardly holds the stocks in the Nasdaq 100 Index and layers an active, “data-driven” covered call option writing strategy on top. The Nasdaq 100 is the 100 largest non-Financials stocks that trade on the Nasdaq exchange. Think Nvidia, Apple, Microsoft, Amazon, etc. Generally speaking, the Nasdaq 100 aka the “NDX” is basically a U.S. tech index at this point, which has paid off handsomely in recent years, making funds based on it more attractive to performance chasers.

Of note for taxable investors is the fact that QQQI tries to take advantage of tax loss harvesting opportunities and also seeks to utilize Nasdaq 100 Index options classified as section 1256 contracts, which are subject to lower 60/40 tax rates compared to ordinary income.

Basically, the fund tries to deliver a high yield, paid monthly, in a more tax-efficient manner than its peers.

For all this, QQQI charges an expense ratio of 0.68%.

QQQI's current distribution rate is near 14%, paid monthly.

Next we'll briefly cover the covered call trade and how QQQI implements it.

Covered Calls and QQQI

Now let's briefly touch on the covered call trade itself. Covered call writers own the underlying and collect a premium on the option. The buyer of the call option has the right – but not the obligation – to buy the underlying at the strike price at or before expiration.

The call options QQQI writes are out-of-the-money (OTM), meaning the strike price sits above the index price, thus the fund does leave a small amount of room to capture some upside before the cap kicks in (horizontal green line in image above). This is a slightly more nuanced, arguably “better” implementation than the more blunt at-the-money approach used by older, somewhat simpler funds like QYLD.

Next we'll more specifically break down the differences versus its popular competitor JEPQ.

QQQI vs. JEPQ

QQQI and JEPQ share the same basic strategy of writing calls on the NDX to generate monthly income for investors. How they get there is a little different though. JEPQ is from J.P. Morgan and launched in 2022, 2 years earlier than QQQI.

First, JEPQ is one small layer removed by using equity-linked notes (ELN's) for its covered call feature, meaning it's not directly writing options. ELN's add a layer of counterparty credit risk. QQQI, on the other hand, is plainly writing options directly on the NDX. This is part of what provides QQQI's tax advantages, getting preferential IRS treatment on those index options. Obviously, an investor's deriving benefit from this different tax treatment will depend on their personal tax circumstances. I'll expand on these tax details further in a dedicated section below.

Secondly, NEOS will also sometimes hop on the other side of that trade and buy long OTM calls when conditions warrant in an attempt to claw back some additional upside (which is invariably sacrificed when selling calls). NEOS call this a “data-driven” approach, which is marketing language for active management. In any case, the mechanics are at least meaningfully different from a static, fully-covered strategy. Note that this won't always be an objective advantage for QQQI, though; that will depend on the market environment for that year. JEPQ slightly won out in 2024, for example.

So in summary, QQQI and JEPQ diverge on tax outcome and coverage style, and whether or not those differences are advantageous to you will depend on your tax situation and the market behavior for any given year.

I noted a while ago that JEPQ is more nuanced than the older QYLD, and now QQQI is more nuanced than JEPQ. We could also call this “effortful,” I suppose. I'm using “nuanced” to mean more thoughtful, more detailed design. Whether or not those nuances will pay off in any tangible sense remains to be seen. They have so far – at least for pure return – in QQQI's short lifetime:

Note that QQQI was a bit more volatile than JEPQ over this period, though, so the risk-adjusted return metrics like Sharpe and Sortino are actually pretty close. It will be interesting to see if QQQI pulls away further as more time passes.

Just note you're paying nearly twice as much for these arguable advantages. JEPQ costs 0.35% while QQQI costs 0.68%. If they had the same fee, one could maybe argue QQQI makes JEPQ obsolete, but that difference of 0.33% to overcome annually is not insignificant.

Next we'll look at QQQI versus its underlying index fund QQQ.

QQQI vs. QQQ

The next obvious comparison is to look at QQQI versus plainly owning the Nasdaq-100 Index via something like QQQ or QQQM. After all, the NDX is QQQI's official benchmark index.

Again, QQQI basically holds the Nasdaq 100 and writes calls on it, so you can sort of think of it as QQQ already being inside QQQI. And then a little bit of the space is dedicated to the option writing.

Since its inception in January 2024 through mid-2026, QQQI has certainly delivered pretty solid numbers in isolation; its total return including dividends has been around 18% annualized since inception. This makes sense; US tech stocks have been soaring in recent years. However, the plain Nasdaq 100 itself has dramatically outperformed that over the same period on CAGR alone at about 22% annualized.

Granted, this is only a little more than 2 years, which is just noise, so grab a handful of salt.

Interestingly, even with its greater volatility and drawdown over the period, QQQM still had a higher risk-adjusted return across Sharpe, Sortino, and Calmar. To add insult to injury, we'll also go over why these risk-adjusted metrics don't even tell the full story in a later section below.

QQQI's volatility since inception has been about 18%, compared to approximately 21% for the Nasdaq-100 Index itself. So you are indeed getting lower volatility, which is part of the stated goal. But as with JEPQ and QYLD, the risk-adjusted returns still don't look particularly compelling once you account for the capped upside, and it's not really ameliorated by NEOS claiming to buy calls in an attempt to time the market and capture upside.

Experienced investors will recognize the mechanical inescapability that covered calls deliver current income precisely by forgoing the upside of the underlying index. This results in worse outcomes – for virtually any goal – the vast majority of the time. Uninformed buyers often seem to miss that fact.

I'd also point out the elephant in the room when we zoom out: the Nasdaq-100 is objectively a poorly diversified index. It's predominantly large-cap growth, it excludes Financials entirely, and it's heavily concentrated in a handful of mega-cap tech companies. I've noted before in the context of QYLD that concentrating in the Nasdaq-100 because of recent performance is largely a recency bias play. Large-cap growth has looked expensive relative to historical norms for years now.

QQQI inherits all of that concentration risk and then layers on the additional complexity and upside limitations of the covered call strategy on top of it.

Is QQQI a Good Investment?

So is QQQI a good investment? Probably not.

If you didn't pick up on it already, covered calls are just plainly not an efficient or effective way to de-risk a portfolio or provide sustained “income.” Don't worry, I'll provide objective illustrations of that claim shortly.

Appreciate that that's not an issue with the fund's strategy or management. QQQI's covered call strategy does exactly what it claims it will do. It reduces volatility relative to the underlying, generates monthly income in the form of call option premiums, provides a small cushion in flat or mild downward markets, and attempts to recapture some upside by occasionally buying OTM calls. (As an aside, hopefully it doesn't require explaining that we can't accurately and consistently predict such market behavior ahead of time, so the odds are already inherently stacked against the covered call investor and especially the market timer.)

As I hinted at earlier, the issue is simply the inescapable mechanics of covered calls themselves. Fischer Black – who literally co-wrote the pricing model for such option contracts – directly addressed this loss of upside in a 1975 paper titled “Fact and Fantasy in the Use of Options,” noting that traders often myopically focus on premium income while ignoring the loss of upside appreciation when the option is exercised. He concluded that an investor who writes call options against existing stock holdings will often end up in a worse position than they started in.

The billions of dollars in funds like this tell me many people either don't know or don't want to accept these mechanics we've known for decades.

Limited upside but leaving nearly unlimited downside risk introduces an appreciably asymmetric returns distribution. This alone should make your spidey sense tingle and is a red flag for anyone versed on such trades. We'll go over this in detail shortly. I've broken up the specific shortcomings and notable features in subsections below.

QQQI basically claims to be able to have the cake and eat it too – match the NDX while also delivering monthly distributions. As you've now seen, this is just not the case.

Proponents will point to the fact that QQQI has handily beaten the Cboe Nasdaq-100 BuyWrite Index, which NEOS boasts prominently on its website. I would too, probably. But this shouldn't be at all surprising. That Index is a hypothetical, passive, fully-covered at-the-money strategy. That QQQI has meaningfully outperformed a naive full-coverage buy-write approach is an illustration of its partial-coverage design and only further proves the point that more covered call trades are a hindrance. Follow that to its logical conclusion…

Next we'll talk specifically about that capped upside and why this hurts long term.

Covered Calls Hinder Mean Reversion

Recall that markets need greater gains to recover from greater losses:

Imagine owning a covered call product in a scenario like the March 2020 flash crash, when the stock market dropped suddenly and steeply. You drop with the market but not quite as much thanks to your nifty option premium and lower beta, but then you don't get to fully participate in the massive – and necessary – recovery.

We can actually see precisely that scenario looking at XYLD, an older S&P 500 covered call product from Global X, versus VOO for the plain underlying S&P 500 Index:

Basically, to word this in a different way that hopefully drives the point home, in explosive bull markets, which the Nasdaq-100 is historically prone to, QQQI lags the NDX, and in flat or moderately declining markets, QQQI fares only slightly better than the NDX. That is not a prediction, but simply a mathematical certainty necessitated by the call option trade itself.

In fairness, QQQI is structurally less exposed to this than the previously mentioned, more blunt QYLD (and JEPQ), since some of its exposure is uncapped and it tries to claw back some upside with long calls. But “less exposed to” does not mean “immune to.” NEOS have indeed built a better mouse trap, but the mouse trap still isn't great.

You might exlaim “But NEOS uses a ‘data-driven' strategy!” Yes, and that claim means basically nothing. Simply saying a thing doesn't mean they're able to consistently time the market. We've already seen as much in its very short lifespan of a little over 2 years. While the NDX was going up, QQQI failed to capture it fully. Again, we should expect this.

Speaking of…

Selling Calls and Buying Calls

I want to take a sec to explicitly break down the hilarity of QQQI's claims and trades here step by step:

1. QQQI is holding the NDX.
2. It dedicates some space to writing calls for income as monthly distributions.
3. It recognizes the capped upside of doing so, so it sometimes takes the precise opposite trade – a long call.

Did you catch that? QQQI uses an additional trade to try to address a fundamental inefficiency created by the first trade, when we could just …do neither.

I'll word it a different way: QQQI is purposefully capping the upside of the NDX and then using the opposite trade to recapture some of that upside it just lost.

I'll word it even more simply: QQQI charges you 0.68% to do 2 and 3 above, when we could just do 1 and spend 0.15%.

And proponents call this set of trades superior management. Pause and appreciate the sheer silliness of the situation…

I know at this point many are screaming “bUt InCoMe!” I know. Bear with me. Seasoned investors will already recognize that the numbers above already illustrate an “income” scenario anyway, but I'll explicitly walk through the income thing shortly below for those who need to see it spelled out.

Props to NEOS, though – their clever marketing language seems to have worked beautifully in falsely allaying the primary fear of buying a covered call fund, which is the capped upside. This shortcoming of the covered call trade is so well-known that I've even seen some novices start mentioning it. But then they think NEOS's promise is true, and it's just not, demonstrably.

And again, in total fairness to NEOS, they have indeed created a reliably more efficient iteration of this specific type of product. And someone who is aware of all these characteristics and still wants a covered call product may still be willing to buy it for that reason. But they've improved that efficiency precisely by giving less attention to the call option writing (and actually making the opposite trade at times; think higher beta). Again I'd say follow that to its logical conclusion of removing the options entirely…

Proponents will brag that QQQI is “able to capture more upside” without understanding what they're actually saying or what that means in a practical sense with respect to the design and trades required to do so. The irony is hilarious, albeit concerning.

And all this inefficiency is visible already after only 2.5 years versus its underlying stocks index! We haven't even touched on a more broadly diversified portfolio across multiple imperfectly correlated assets, which we'll look at later below.

Novices have thankfully begun recognizing that they trade upside for current income with these products. That's great! What they perhaps don't realize is that we can still measure the (in)efficiency of that tradeoff. We don't just have to guess and go off vibes and warm feelings from seeing high yield.

Worse, they seem to cling to marketing claims and false promises instead of acknowledging reality. The mental gymnastics I've seen in an attempt to rid their cognitive dissonance is, at times, mind-boggling. I say this not only as an observer but as a direct participant in many conversations surrounding these types of products, usually with the finfluencers pushing them. Of course, the purposeful obfuscation by the fund provider is often to blame; more on this later.

Now let's discuss the specifics of QQQI's yield, fees, and tax treatment.

QQQI Yield, Fees, and Taxes

So the main attraction of QQQI is obviously its stated distribution yield of nearly 14%. That's why people are buying it. That yield is paid out monthly as income. That means investors can use it for monthly expenses. That's its purpose.

I use the word “distribution” because these are not dividends.

But naive buyers often solely focus on that juicy yield and ignore the rest, not realizing they could likely achieve demonstrably superior outcomes – less risk, more stability, and more “income” – using simpler, cheaper products. I'll model this for you later below. Worse, people seem to think the income is guaranteed and they can just ignore whatever the share price does. This is a severe misunderstanding of both the product itself and of safe withdrawal rates (SWR), meaning withdrawals that don't exhaust the portfolio. Simply put, yield is not SWR.

Don't succumb to that mental accounting of closing one eye to avoid the bad stuff and take off the rose-tinted glasses. I say it all the time: As usual, total return and the risk you're taking to get it are all that matters at the end of the day, even for the so-called “income” investor. Many don't realize that is precisely what's determining your safe withdrawal rate (SWR). Sadly, covered call funds appeal to such cognitive errors in assessment.

And in considering all these inefficiencies we're touching on, don't forget QQQI costs 0.68%, over 4x its underlying QQQM at 0.15%. Again, its expected outcome is already inferior, and then that significant fee differential is a big insult after injury.

Naysayers will say I'm dumb for even comparing those in the first place. I recognize comparing them alone doesn't make much sense since they serve different purposes; I do so purely to provide the framework for the discussion, to keep us grounded in reality with respect to fees, and to establish baseline risk-adjusted return figures for comparison (see above). The entire purpose of funds like this is to provide current income more efficiently than buying the underlying, and I want to emphasize that they typically still fail at that singular, simple goal.

For a young accumulator who is thinking about simply reinvesting the distributions, QQQI makes even less sense. It makes zero sense. If you don't need that monthly income to pay your bills, you're just getting taxed on hefty distributions and then reinvesting the after-tax amount, creating a not-so-insignificant drag, all while capping the upside of the investment. That investor would inarguably be better off in a plain-vanilla Nasdaq-100 fund. Again, I want to stress that this is not my opinion; it's a mathematical certainty that is made certain by the call writing trade itself.

Many seem to think they're getting something extra in that distribution. They think they're owning the index and getting some icing on top. QQQI's marketing says as much. As you've now seen, this is absolutely not true.

Now let's talk about QQQI's preferential tax treatment, which at least somewhat makes up for that higher fee. Previous iterations of high-yield income funds like this often delivered distributions as ordinary income, taxed at one's marginal tax rate. Here QQQI is using the preferential Section 1256 contract treatment of 60% long term capital gains and 40% short term capital gains. Your derived benefit from that will depend on your personal tax circumstances.

Additionally, NEOS is using tax-loss harvesting within the options book and consequently has classified the majority of QQQI's distributions as return of capital (ROC) rather than as 1256 gains or ordinary income outright. But ROC is often misunderstood too. It's not free money. A lot of marketing around these funds conveniently blurs this line.

ROC isn't taxed when you receive it. Instead, it reduces your cost basis in the shares you hold. When you eventually sell (or once your basis hits zero and further distributions become taxable capital gains), you pay tax on the deferred amount, generally at capital gains rates. Tax deferral is a real advantage, no doubt, but it's not a magic exemption as many seem to erroneously believe.

To state the obvious, these tax advantages evaporate completely if you're holding QQQI inside an IRA, where the tax characterization of the distribution doesn't matter.

Next we'll cover another oft-misunderstood claim about covered call funds – “downside protection.”

QQQI Does Not Provide Downside Protection

Some people like to claim that a covered call fund offers “downside protection,” meaning a blunted drawdown when the market drops. So for a hypothetical example, if the underlying index drops 20%, the covered call fund might only drop 15%.

That sounds nice until we realize that difference is precisely equal to the amount of the premium received from writing the call option. But is a comparatively small volatility reduction tangibly beneficial anyway in this context? Probably not. And like I hinted at earlier, you also just sold the upside you'll need to recover.

That means QQQI will fall roughly in line with the Nasdaq-100 in a downturn, minus whatever premium was collected along the way. That premium provides a small cushion; it does not meaningfully alter the shape of the loss. Brady Ross on Twitter uses an analogy I like for this. He aptly describes it as “jumping out of the Empire State Building into a couch cushion.”

I'll walk you through how this shakes out empirically.

The investor who actually needs that regular income every month — say, a retiree who is spending down the portfolio and wants predictable monthly distributions — obviously has a more legitimate case for owning a fund like this, but even she can almost certainly do better. I'll model out withdrawals later, but for now let's just look at volatility, drawdown, and risk-adjusted return again.

Notice how diversifying across multiple assets (using low cost index funds, no less) tends to produce demonstrably superior outcomes across the board, and this is only looking at merely 2.5 years since QQQI launched!

You might be thinking this is anomalous given the short time period. It's not. Older covered call funds exhibit the same behavior comparatively. Their suboptimality actually widens typically as we increase the time window.

I'll expand on that risk characteristic in more detail, since it warrants explaining. Simply put, despite erroneous claims from dividend bros shilling products like this on social media, covered calls do not protect the downside. Period.

I see this bogus claim about JEPQ, JEPI, QQQI, QYLD, GPIQ, etc. everywhere, and it's simply not true in any meaningful sense. Proponents see lower volatility and a slightly smaller drawdown than the underlying and exclaim “Look! It has dOwNsIdE pRoTeCtIoN!”

But it only lowers such risk measurements only slightly. And there's the rub. If you want less beta, sell some beta (and hold cash). That's exactly what I've illustrated with the backtest here. Put another way, the option premium received provides only a small cushion. It does not provide any semblance of robust resiliency. It does not prevent QQQI from falling sharply when the Nasdaq-100 crashes. We just saw as much.

Anyone holding QQQI for “downside protection” has severely misunderstood the product. If downside protection is the goal, as again it may very well be for the risk-averse investor or retiree, we'd look elsewhere to structurally uncorrelated assets like bonds and gold. Or you'd want a fund that buys put options; QQQI does not.

At best, we could maybe argue a small allocation to covered calls could “diversify your diversifiers,” but I still think on average this is an unwarranted inclusion in any portfolio.

Now let's circle back to those marketing claims I keep mentioning…

Exploitation of Biases and Novices' Naivete

Fund marketing literature for products like this often leans heavily on biases like loss aversion, the tendency of humans to be more sensitive to losses than to gains of an equal amount. Promoters do so by boasting about Sharpe ratios and drawdown mitigation. They exploit mental accounting bias by highlighting that high “income,” getting investors to conveniently ignore share price behavior. As you now hopefully understand, none of these claims really hold water under minimal scrutiny, and that “income” is basically an illusion.

Specifically here with QQQI, we see claims of lower volatility while still participating in the upside of the underlying equities index. Those are fundamentally contradictory. We also have claims of successful market timing and recapturing more upside via long calls. We've seen that these claims don't hold water either.

Of course, novices don't know to look for such things, much less how to.

This isn't a new observation. Harris, Hartzmark, and Solomon documented back in 2015 that fund providers will deliberately “juice” distribution yields specifically to attract unsophisticated, income-focused investors, and that funds doing so tend to deliver worse total returns and higher tax costs on average.

In a 2022 paper titled “Individual Differences in Susceptibility to Financial Bullshit,” Kienzler, Västfjäll, and Tinghög noted this uncomfortable implication for products like QQQI: the investors most drawn to high-yield, jargon-heavy financial marketing are precisely the ones least equipped to critically evaluate what they're buying, and end up with worse financial outcomes on average.

Ben Felix's now-well-known summary of this entire category rings true yet again: “covered call products are neither high-income nor high-Sharpe, and the idea that covered calls generate income is financial bullshit.”

Next we'll briefly touch on the skewness issue I hinted at in regards to why risk-adjusted return still looks unrealistically rosy for these products.

Skewness, Sharpe, and Shortcomings

Seasoned investors may also recognize that up to this point, we've also generously ignored the fact that Sharpe and Sortino don't even account for covered calls' negative impact on skewness and kurtosis, which are higher moments of the return distribution. (Though funnily enough, Sharpe and Sortino are often still lower for the covered call product, as you've seen.)

Basically, when options enter the picture, our beloved Normal distribution aka “bell curve,” on which many fundamental mean-variance optimization assumptions rely, goes out the window. So fundamentally, viewing covered calls through an MVO lens at all is already technically incorrect, or at least imprecise, and unfairly favors covered calls.

Such effects on skewness were noted as far back as 1981 by Bookstaber and Clarke in a paper titled “Options Can Alter Portfolio Return Distributions.” Brooks and Chance similarly noted in their 2019 paper “The ‘Superior Performance' of Covered Calls on the S&P 500: Rethinking an Anomaly” that previously anomalous alpha sometimes seen with covered call strategies vanishes entirely after controlling for negative skewness, citing that such alpha is merely an “illusion.”

This is why I previously noted that the risk-adjusted return metrics from earlier are realistically even lower than they already appear and don't tell the full story.

You're probably still thinking 2.5 years just isn't enough time and that QQQI will eventually prove itself. In the next section I'll explain why longer time periods typically illustrate the worsening of the performance delta.

Longer Isn't Better

Over some extremely short period of sideways market movement, which is itself a rare occurrence, covered calls may warrant some small inclusion in the portfolio, because again that's the only time they shine. The issue is that over any reasonably long period, the aforementioned asymmetry of returns compounds. Increasingly more upside is capped, and increasingly more downside is left exposed. And we've already seen this in just a few years since QQQI's launch!

Now in fairness, we haven't seen a sustained flat or mild bear market during that short period. But there's the rub. We're usually investing in the market at all because we expect it to go up more than it goes down. The covered call fund like QQQI still relies on this assumption, but intrinsically mutes its effect to the detriment of the investor. Any advantage the covered call fund has during a flat or mild bear market is necessarily short-lived if we assume markets go up over the long term.

Extending the logic on the asymmetry property, hopefully it is intuitive at this point that the disparity is likely to get worse the longer the covered call fund is held. That is, the gap between the covered call fund and its underlying equities index is expected to widen as more time passes. Like I just noted, we've seen that already in just a few short years' time with QQQI, but here's PBP, one of the oldest covered call ETFs, versus its underlying S&P 500 since 2007 to illustrate this point further:

Next I'll explicitly address the regular “income” withdrawals youv'e been waiting for.

Modeling Withdrawals

I know what you may be thinking at this point: We care about getting sustainable monthly income to cover expenses, not just which strategy had the highest return over the long term, idiot!

Recognize – and I'll show you this in a sec – that, in this context, those are actually sort of the same goal. That's why I focused so heavily on volatility, drawdown, and subsequent risk-adjusted performance earlier. Like I mentioned above, those are different measurements of things that directly affect the sustainability of the income-generating portfolio.

For many, that leap should be intuitive, but I'll admit I often gloss over it in discussions with income investors about these products. But I've seen the people I converse with on this topic often don't seem to understand what those numbers are showing, so I'll spell it out.

Let's model it out using the same example above to illustrate. Here's that same time period for PBP, a covered call fund based on the S&P 500, and VFINX, an S&P 500 mutual fund, with a $1M starting balance and $5,000 withdrawn monthly as “income.” Just for comparison, I've also included the idea I mentioned earlier – simply holding the underlying and some cash, in this case a 60/40 allocation.

The result is what we'd expect given everything we've discussed so far – Both the underlying and 60/40 resulted in higher annualized return, lower volatility, lower risk, and consequently more money left at the end. That is, they allowed the investor to withdraw more income for longer. Specifically, 15-year safe withdrawal rates for the 3 portfolios were 6.67%, 8.16%, and 7.79% respectively:

Appreciate that it matters not whether the monthly withdrawals came from options, dividends, or share price appreciation. Once again, total return and risk are the only things that matter at the end of the day. Total return is what pays your bills.

A corollary to that, which also hopefully shouldn't require explaining but somehow often seems to when this kind of topic is raised, is that avoiding selling shares has no tangible benefit, and number of shares objectively doesn't matter. We only care about the value of those shares, as, once again, that's what pays the bills. 1 share worth $100 is effectively the same thing as 100 shares at $1 each.

Moreover, also pause and appreciate that PBP has a stated distribution yield of 11%, yet its historical total return was only 5% annualized. Simply put, yield is not return. That's why we often say the income from these funds is an “illusion.” This is not at all obvious to the novice investor, and marketers exploit that.

“But that's not QQQI! Show QQQI!”

You're right. I wanted to show a longer time period with an older covered call fund. Here's QQQI using our same comparisons from earlier but this time introducing regular withdrawals of $2,000/mo. as “income” on a $100k starting balance:

Same story. Hopefully you now realize that the risk-adjusted return measures basically tell the income story already, as I hinted at earlier.

So now when you see someone on social media claiming a covered call “income” fund will allow you to retire earlier and “keep all your shares,” or cavalierly comparing the distribution yield to a retirement withdrawal rate, you can call them out on the sheer nonsense of all of those ideas. Covered calls do not somehow magically dismiss the math behind sequence risk and safe withdrawal rates.

One last thing worth noting that people also seem to forget is that QQQI's distribution yield is not fixed. It fluctuates with market volatility, since higher volatility environments produce richer option premiums. In calm, steadily climbing markets, premiums compress and yields decline. If you're counting on QQQI's current yield as a planning assumption going forward, you may be in for a surprise in a low-volatility bull market (and markets usually go up during periods of low volatility). You're also likely in for a surprise with the tax bill if you're only used to qualified dividends.

So what are we supposed to do for “income?” Let's talk about it…

Income Does Not Necessitate “Income”

If you couldn't tell by now, I'm not a covered call fund investor and I'm not a dividend investor generally. I'd rather own a broadly diversified basket of low-cost index funds and simply sell shares as needed for income (and I happen to think most other people should, too). I'll explain my case for why I believe this.

I understand the psychological appeal of a regular cash deposit hitting your account every month, but mathematically, it's effectively the same and is usually inferior due to all the aforementioned reasons. I can set up the brokerage to sell shares for me automatically and create my own “dividend” when and how I want, and I do.

Previously, there was admittedly a big logistical argument favoring dividends and distributions, especially when there were trading fees with brokerages, but nowadays I can, again, have the brokerage automatically liquidate shares for me and transfer cash to my bank account without lifting a finger. The logistics are no longer different.

In short, I don't let mental accounting or corporate dividend policy dictate my investing strategy or personal spending policy. You may feel differently.

In an admitted attempt purely to appeal to the sensibility of the dividend bros on Reddit and Twitter, a generous compromise to scratch the itch here would be to maybe include QQQI as a small percentage of the portfolio, but not the whole thing, basically making it an “income sleeve” of sorts (even though I hate that term). Portfolios don't have to be all-or-nothing. This would be adding an option writing overlay to an otherwise traditional portfolio. That is, for a hypothetical example, you could hold the NDX via QQQM, some T-bills, some gold, and a dash of QQQI, and have a well-diversified setup (at least within the NDX selection universe).

That said, as usual, I'd emphatically encourage anyone to get away from this fanciful idea that you must own a high-yield product with “income” in the name if you need income, or even more generally, get away from the idea that you must get your “income” from dividends or distributions.

This irrational mental accounting bias would be comical at this point if it weren't so concerningly pervasive, particularly among novices. I know I'm beating a dead horse, but it is tremendously troubling to me that these [usually] terrible products are vehemently pushed on unsuspecting novices in arenas like YouTube and Twitter, using the allure of so-called “passive income,” often by equally uninformed grifters who are creating the content and simply highlighting juicy yields to make bogus claims without understanding any part of what they're even talking about, much less the nuances discussed above.

Also, stop jumping to the next shiny covered call object that launches. First it was QYLD. Then it was JEPQ. Now it's ostensibly QQQI and GPIQ. Despite severely uninformed finfluencers – who are often paid to push these products – claiming otherwise, accept that NEOS and YieldMax can't change option math.

In short, as you hopefully now understand, the implementation of any particular covered call fund is not the issue; it's the fundamental mechanics of writing call options per se. NEOS has tweaked the structure to squeeze out a bit more tax efficiency and claw back some beta, but if it is a covered call fund in any form, by definition it is not the holy grail you think you've found that will suddenly be the one to beat its underlying over the long term and somehow magically remediate all the problems I discussed earlier. The hilarious irony I keep hinting at is that the only way to fix those is to remove the covered call feature entirely.

Let's talk about those influencers specifically for a sec…

Finfluencers Selling Yield

Lastly, let's briefly touch on why you've probably seen QQQI talked about everywhere anyway.

NEOS runs a paid promotion program. Some YouTube content featuring NEOS funds carries explicit sponsorship disclosures along the lines of “this content is sponsored by NEOS Investments, and the creator is compensated by NEOS to discuss NEOS ETFs.” NEOS also shows up on sponsor-tracking platforms as a newsletter sponsor, with at least one financial newsletter disclosing an existing business relationship with the firm.

This is all disclosed by NEOS and is per se not an issue. Disclosed sponsorship is a normal, legal part of how asset managers market products in 2026. The issue is a lot of these severely uninformed finfluencers are not disclosing the relationship at all and are pushing these products cavalierly without fully understanding them. Despite these influencers claiming otherwise, NEOS cannot change option math and the implications we explored above.

Of course, again, the influencer often doesn't even fully understand what they're promoting. They're just regurgitating the marketing claims, which, as we already showed, are designed to obfuscate reality from the start. To make matters worse, influencers are often misinterpreting and unfairly expanding those marketing claims to make conclusions that are plainly false. NEOS created a comparatively better covered call fund, but that doesn't make it a great product. As I've said elsewhere, it appears to be just a different flavor of the same junk food.

Treat any content about a high-yield fund like this as marketing, not as independent analysis, adopt a healthy degree of skepticism, and evaluate the fund on the actual mechanics and math instead. Hopefully you can use the analysis here as inspiration for how to begin to evaluate this stuff, but if you don't, send me a DM and I'll try to help you where I can.

As usual, if it sounds too good to be true, it probably is. Complex, high-fee products are almost always just a way for providers to extract fees from unsophisticated investors.

To be abundantly clear, I am not part of NEOS's paid promotion program, and I never will be. I'd think if I were, they would have kicked me out by now.

Recap and Conclusion

That was a lot. Let's recap:

1. QQQI writes call options on the Nasdaq 100.
2. QQQI launched in 2024, has since amassed about $10 billion in assets, and costs 0.68%.
3. The Nasdaq 100 is poorly diversified.
4. QQQI has a high distribution yield near 14% that is paid monthly, making it attractive to income investors.
5. QQQI's yield can vary.
6. That yield is basically an “illusion” and is usually your own capital being returned to you.
7. QQQI claims to recapture some upside lost with writing covered calls by occasionally buying calls, but this is mostly just marketing baloney, and successfully timing the market cannot be done consistently.
8. As we would expect, QQQI has lagged both its underlying index and a well-diversified multi-asset portfolio on virtually all metrics and outcomes, including the generation of “income.”
9. Covered calls per se negatively impact expected returns, mean reversion of equities (recovery), and skewness. These negative attributes are exacerbated as the time period widens. Plainly, covered calls are not good for long term investors, even those wanting “income.” These characteristics are also worsened by trying to ratchet up the yield of the fund, and are not offset by the fund's “income.”
10. The theoretical shortcomings show up empirically in live fund data (and even before necessarily greater taxes, trading costs, and fees).
11. Covered calls are expected to outperform exclusively during brief periods of truly sideways or mildly declining markets, which are inherently rare environments.
12. Covered call products exploit cognitive errors such as loss aversion and mental accounting bias and the naivete of unsophisticated, income-oriented investors who are least likely to know how to properly evaluate what they're buying.
13. Covered calls do not improve safe withdrawal rates and do not somehow allow for earlier retirement.
14. Generally speaking, covered call fund yields are, at best, you guessed it, irrelevant.
15. Share count is also irrelevant, and selling shares in a down market shouldn't be feared, as we only care about the value of those shares and what they can buy us.
16. NEOS has a paid promotion program.
17. Woefully uninformed finfluencers push these high-yield, high-fee products on social media.
18. One does not need an “income” product to generate income. Ironically, using one is typically objectively inferior from both a risk perspective and a tax perspective.

If for some reason you still want QQQI after all that, it should be available at any major broker, including M1 Finance, which is the one I tend to suggest around here.

What do you think of QQQI? Do you own it? Let me know in the comments.

QQQI FAQ's

Lastly, here are some frequently asked questions about QQQI and their answers.

References

Black, F. (1975). Fact and fantasy in the use of options. Financial Analysts Journal, 31(4), 36–41. https://doi.org/10.2469/faj.v31.n4.36

Bookstaber, R., & Clarke, R. (1981). Options can alter portfolio return distributions. Journal of Portfolio Management, 7(3), 63–70. https://www.pm-research.com/content/iijpormgmt/7/3/63

Brooks, R., Chance, D. M., & Hemler, M. L. (2019). The “superior performance” of covered calls on the S&P 500: Rethinking an anomaly. The Journal of Derivatives, 27(2), 50–69. https://www.pm-research.com/content/iijderiv/27/2/50

Calluzzo, P., Moneta, F., & Topaloglu, S. (2021). Complex instruments have increased risk and reduced performance at mutual funds. Critical Finance Review, 14(1). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2938146

Goetzmann, W. N., Ingersoll, J. E., Spiegel, M. I., & Welch, I. (2007). Portfolio performance manipulation and manipulation-proof performance measures. The Review of Financial Studies, 20(5), 1503–1546. https://doi.org/10.1093/rfs/hhm025

Harris, L. E., Hartzmark, S. M., & Solomon, D. H. (2015). Juicing the dividend yield: Mutual funds and the demand for dividends. Journal of Financial Economics, 116(3), 433–451. https://doi.org/10.1016/j.jfineco.2015.04.001

Harvey, C. R., & Siddique, A. (2000). Conditional skewness in asset pricing tests. The Journal of Finance, 55(3), 1263–1295. https://doi.org/10.1111/0022-1082.00247

Israelov, R., & Nze Ndong, D. (2024). A devil's bargain: When generating income undermines investment returns. The Journal of Alternative Investments. https://doi.org/10.3905/jai.2024.1.211

Kienzler, M., Västfjäll, D., & Tinghög, G. (2022). Individual differences in susceptibility to financial bullshit. Journal of Behavioral and Experimental Finance, 34, 100655. https://doi.org/10.1016/j.jbef.2022.100655

Leland, H. E. (1999). Beyond mean–variance: Performance measurement in a nonsymmetrical world. Financial Analysts Journal, 55(1), 27–36. https://www.pm-research.com/content/iijpormgmt/25/5/109

Maillard, D. (2013). Manipulation-proof performance measure and the cost of tail risk. SSRN Working Paper. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2276050

Merton, R. C., Scholes, M. S., & Gladstein, M. L. (1978). The returns and risk of alternative call option portfolio investment strategies. The Journal of Business, 51(2), 183–242. https://www.jstor.org/stable/3665864

Whaley, R. E. (2002). Return and risk of CBOE buy write monthly index. The Journal of Derivatives, 10(2), 35–42. https://doi.org/10.3905/jod.2002.319194

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Disclaimer:  While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a research report. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. I mention M1 Finance a lot around here. M1 does not provide investment advice, and this is not an offer or solicitation of an offer, or advice to buy or sell any security, and you are encouraged to consult your personal investment, legal, and tax advisors. Hypothetical examples used, such as historical backtests, do not reflect any specific investments, are for illustrative purposes only, and should not be considered an offer to buy or sell any products. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.