QYLD Review – Is This ETF a Good Long Term Investment?

QYLD gained massive popularity among income investors for years as a bullish-yet-defensive play on the Nasdaq 100. Here we'll review it and look at why it's probably not a good choice for a long term investment portfolio.

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QYLD ETF Video

Prefer video? Watch me review QYLD here. If not, keep scrolling to keep reading. The sections below have updated stats not included in the video, which is a few years old.

Introduction – What Is QYLD?

QYLD is an ETF from Global X that holds the Nasdaq 100 index and sells covered calls on it to generate income. Its full name is the Global X NASDAQ 100 Covered Call ETF. It is one of the largest covered call funds out there with over $8 billion in assets.

QYLD Quick Stats Table

Before we get into the details, here are the quick stats for QYLD:

*Data as of May 4, 2026.

How Does QYLD Work?

As a brief refresher, covered call writers own the underlying and collect a premium on the option, and the buyer of the call option has the right to buy the underlying at the strike price at or before expiration.For example, if I own a fund like QQQ for the NASDAQ 100 and I think it's going to be relatively flat for the next 30 days or so, I might sell a call option on it, for which I receive cash immediately (called the premium). The buyer of that call option is hoping QQQ goes up. As the seller, I'm hoping it stays flat. Call options are usually sold to generate income in a flat or mild bear market.

This is exactly what QYLD does. The fund holds stocks in the NASDAQ 100 and writes 1-month at-the-money calls on them. It's pretty simple; nothing proprietary going on. QYLD charges a fairly hefty 0.60% for this strategy. QYLD is popular because this allows the fund to have a distribution yield upwards of 10% that pays monthly, making it attractive to income investors.

QYLD Dividend Yield

Selling call options monthly gives QYLD cash premiums to distribute as “dividends.”

I put the word “dividends” in quotes because of what I just noted: these are option premiums distributed as income, not dividends. This results in different taxation compared to what we'd usually see for actual dividends from a dividend fund, for example.

This option writing strategy allows QYLD to have a large distribution yield of about 12%.

QYLD Dividend History

Let's talk about the history of those dividends/distributions for QYLD.

QYLD has paid a distribution every single month without interruption since it launched in December 2013 – over 135 consecutive monthly payouts as of early 2026.

Here's the full annual distribution history per share, sourced from Global X's official year-end tax supplements and distribution records:

Source: Global X

A few things jump out from this table. The distributions peaked in 2021 at $2.85 and have not come close since. The 2017 trough at $1.89 came during what was a particularly low-volatility environment. When implied volatility drops, so do option premiums, and thus so do QYLD's distributions. This is an inherent characteristic of the fund's design that its fans tend to gloss over: your income is directly tied to how nervous the options market is feeling that month, and you have zero control over that.

At the same time, the share price has gone from $25.00 at inception to roughly $18 today, a decline of about 28%. So the fund has been paying you monthly while quietly handing back a portion of your own capital. People often call this “NAV erosion,” i.e. the share price eroding. The headline yield stays elevated in percentage terms because the denominator (share price) keeps shrinking along with the numerator (dollar payout). It's basically what we colloquially call “shrinkflation” – the stated price stays the same while the product gets smaller.

QYLD Tax Treatment

So now let's talk about the tax treatment of those distributions from QYLD. This is where QYLD's story gets somewhat complicated and interesting, and represents a source of confusion for many novice QYLD investors.

Let's start with the simple question thousands of people ask every year: Are QYLD dividends qualified?

No. Full stop. As I hinted at earlier, QYLD distributions are essentially never qualified dividends, and this is an inherent quality of the fund's legal structure, not a choice. Here's why.

The IRS has specific holding period requirements before a dividend qualifies for the lower long-term capital gains rates. Normally, you'd need to hold a stock for more than 60 days around the ex-dividend date to qualify. QYLD complicates this because of how it handles taxes on its combined equity-plus-options portfolio.

Global X elects what's called a “mixed straddle” approach under IRS regulation. Because QYLD simultaneously owns Nasdaq-100 stocks (non-Section 1256 securities) and writes index call options (Section 1256 contracts), the IRS treats these as offsetting positions.

The moment QYLD enters a short call position against its equity holdings, the holding period on those equity positions is suspended. Suspended holding period means no qualified dividend treatment ever, regardless of how long the fund has actually held the stocks. Global X's own June 2024 Covered Call Tax Primer states this plainly: “dividends received by the fund are not treated as qualified dividend income (QDI) due to a suspension of the holding period.”

That means if you're in the 37% bracket and holding QYLD in a taxable account, you're paying roughly 41% in combined federal tax (37% income + 3.8% NIIT) on the ordinary income portion of QYLD's distributions. Compare that to QQQ's ~0.5% annual yield, which is almost entirely qualified dividends taxed at ~24% in the same bracket. The tax drag on QYLD in a taxable account is substantial and structural; it doesn't go away in a good year or a bad year.

I'll briefly explain the mixed straddle situation for those curious.

Think of QYLD as having 2 separate buckets that get netted daily:

• Equity bucket (non-Section 1256): Gains from rising stock prices, suspended holding period, so all gains are short-term.
• Options bucket (Section 1256): Gains/losses from the written call options, automatically taxed 60% long-term / 40% short-term.

The net result of combining these two buckets determines whether your annual distributions show up on your 1099-DIV as ordinary income, long-term capital gains, return of capital, or some combination. The outcome is not predictable from year to year; it depends entirely on the direction and magnitude of the Nasdaq 100.

Arguably the most salient example of QYLD's tax unpredictability is what happened with the 2021 tax year. Throughout 2021, every monthly Section 19a notice that Global X published estimated QYLD's distributions as roughly 98-100% return of capital, meaning tax-deferred, cost-basis-reducing, no current-year tax owed.

Then in early 2022, when actual 1099-DIVs arrived, the story changed completely. 100% of QYLD's 2021 distributions were reclassified as ordinary income.

The mechanical reason was straightforward in retrospect: the Nasdaq-100 had a blowout 2021, gaining about 27%. When the underlying index rises sharply, the equity bucket generates large short-term gains that overwhelm the options bucket, leaving no room for ROC classification.

The Section 19a notices are required to carry a disclaimer like “not provided for tax reporting purposes” and “should not be considered a representation of amounts expected to be paid” but many investors who underestimated that language in 2021 got an expensive education. Go look at Reddit and Twitter posts around that time from furious amateurs holding QYLD.

Return of Capital (ROC) Explained – What It Is and When QYLD Has It

In the interest of full disclosure, let's talk about that return of capital (ROC) classification with respect to QYLD.

Return of capital sounds alarming but is actually tax-favorable in the short term. When a distribution is classified as ROC, it's not immediately taxable. Instead, it reduces your cost basis in the fund. If you paid $20/share and received $2 of ROC distributions, your adjusted cost basis drops to $18. You only pay tax on the ROC when you eventually sell (at whatever capital gains rate applies then), or when your cost basis hits zero, at which point future ROC becomes taxable as capital gains.

Many erroneously think this is avoiding taxes entirely, but appreciate that it's just deferring them 'til later.

As you've seen, the problem with QYLD's ROC isn't that ROC is bad but rather that it's wildly unpredictable from year to year, swinging between 0% and 100% based on market conditions that have nothing to do with your financial planning needs. To illustrate this, here's the year-by-year picture for the last 5 years from Global X's official year-end tax documents:

*2024 total ordinary includes regular income and short-term capital gains from a December special distribution.

Source: Global X

2023 and 2024 were polar opposites – 2023 was nearly 100% ROC while 2024 was 100% ordinary income.

The 2025 breakdown was the most mixed of the last 5 years.

This gap between the monthly 19a estimates and the year-end 1099 actuals is just an unfortunate, inherent feature of how the mixed straddle netting discussed earlier works. The estimates are based on year-to-date calculations that can shift dramatically based on the fourth quarter's market performance.

As such, hopefully now you see why you simply cannot plan your tax strategy around QYLD's 19a notices. The fund itself acknowledges this, albeit with a boilerplate disclaimer that most are likely overlooking: “A return of capital does not necessarily reflect QYLD's investment performance and should not be confused with ‘yield' or ‘income.'” This is Global X's way of telling you in polite corporate language to not rely on ROC estimates.

To further put the tax situation in perspective, Imagine two investors in the 37% bracket, both investing $100,000 in the Nasdaq-100:

• Investor A holds QQQ. Annual yield is ~0.5%, almost entirely qualified dividends taxed at 23.8%. Annual tax bill is roughly $120. Capital appreciation compounds untouched until they sell for long term capital gains.
• Investor B holds QYLD. Annual distributions are ~$11,000 on a $100,000 position. In years like 2024, 100% ordinary income is taxed at 40.8%. Annual tax bill is roughly $4,488. Meanwhile, the underlying NAV is declining at roughly 2-3% per year, meaning more taxes later.

Investor B is not only generating a smaller after-tax income than the stated distribution yield implies. They're also paying that tax bill in years when the fund is quietly eroding their capital. The “income” is partially their own money coming back to them (in ROC years) and partially a forced realization of gains they didn't choose to take (in ordinary income years).

If you're holding QYLD in a tax-advantaged account like a Roth IRA or traditional IRA, the tax treatment is irrelevant within the account, but you then lose one of the few potential scenarios where QYLD's structure might make sense, since tax-advantaged accounts don't benefit from the ROC cost-basis reduction either. It's a bit of a lose-lose.

The Academic Case Against QYLD

At this point let's zoom out and talk about covered calls in general while mentioning how their characteristics relate to QYLD specifically.

The covered call enthusiast community has a tiresome playbook: “higher yield, lower volatility, better Sharpe ratio, iNcOmE.” At minimum, these claims deserve scrutiny against what decades of academic research has actually found (but a simple backtest also tells the story if you're lazy; I'll show some later).

The main problem is what I hinted at in the title of this post – as you extend the holding period, the covered call writing looks worse. Neuberger Berman's research found that over the post-2011 decade, the S&P 500 BuyWrite strategy trailed the S&P 500 itself by more than 450 basis points per year. The strategy that looked brilliant during sideways-to-choppy markets in the late 1990s and 2000s looked decidedly lackluster during the sustained equity bull market that followed.

This makes intuitive sense, and AQR's Roni Israelov and Lars Nielsen formalized exactly why in two influential Financial Analysts Journal papers. Their 2014 paper, “Covered Call Strategies: One Fact and Eight Myths,” made the argument that covered calls are simply a bundle of three exposures:

1. Passive equity exposure – provides most of the return and most of the risk.
2. Short volatility (variance risk premium) – the one genuinely compensated risk factor, with a Sharpe ratio near 1.0 in historical data.
3. Equity market timing risk from the fluctuating delta of an at-the-money call – contributes roughly a quarter of total risk with essentially zero additional expected return.

That third component is the one that hurts QYLD specifically. By writing at-the-money calls on 100% of the Nasdaq-100 every month, QYLD maximizes exposure to that uncompensated equity timing risk. You're systematically selling your right to participate in the market's best months and getting nothing in return for that concession beyond the comparatively small call premium. In a market that predominantly goes up over time, which we'd expect, since that's why we invest in equities, this is a structural drag on your returns.

I'll provide simple explanations and visualizations of the practical implications of this data in the next section.

The variance risk premium (the “real” economic justification for option-selling strategies) is real and well-documented. Bakshi and Kapadia (2003) and Carr and Wu (2009) both confirmed that implied volatility consistently runs higher than realized volatility, meaning sellers of options collect a premium for bearing that uncertainty. CBOE data shows the BXMD index (which writes slightly out-of-the-money calls instead of at-the-money) outperforming the standard ATM BXM by a meaningful margin over 30+ years. Out-of-the-money strikes better isolate the volatility premium while reducing the equity-timing drag. Ironically, this is precisely what QYLD's newer competitors like JEPQ and QQQI have moved toward.

One more thing worth noting is that covered call strategies produce negatively skewed returns. CBOE's own data shows BXM skewness of roughly -1.11, versus -0.81 for the underlying S&P 500, meaning the strategy's return distribution has a fatter left tail than the index itself. You're trading away the best months to collect modest premiums, while keeping all of the bad months. Most investors would prefer the opposite.

The S&P Dow Jones Indices published a sobering 2017 illustration of this: $100 invested in BXM from March 2006 to December 2016 with all distributions reinvested grew to $165.57, but the same $100 receiving all premiums and dividends as cash (not reinvested) left investors with just $11.47. The “income” in these strategies is not created out of thin air; it comes at the direct expense of long-term wealth accumulation.

Covered call funds appeal to cognitive errors like mental accounting bias. It's like buying a $100 lottery ticket and being excited that you won $10.

Fund providers are aware of these biases like mental accounting and loss aversion, and their marketing literature exploits them by claiming nice things about Sharpe ratios and drawdown mitigation and by highlighting high “income,” getting unsophisticated buyers to conveniently ignore share price behavior. As I'll show you shortly, none of these claims really hold water under the smallest amount of scrutiny, and that “income” is basically an illusion.

Harris, Hartzmark, and Solomon referenced this in their 2015 paper “Juicing the Dividend Yield: Mutual Funds and the Demand for Dividends,” noting that fund providers will deliberately “juice” the yield to specifically target unsophisticated, income-oriented investors, and that higher yields typically resulted in worse total returns and greater tax costs, as we'd probably expect.

In a 2022 paper titled “Individual Differences in Susceptibility to Financial Bullshit,” Kienzler, Västfjäll, and Tinghög similarly noted this uncomfortable implication for products like QYLD, pointing out that the investors most drawn to complex, high-fee, high-yield, jargon-heavy financial products like this are precisely the ones least equipped to properly evaluate what they're buying, and end up with worse financial outcomes as a result.

Ironically, zooming out, the distribution yield of products like QYLD is also inversely related to their expected returns, due necessarily to the underlying covered call trade itself, which gives up increasingly more upside of the underlying as the strike price is lowered to extract more option premium. Israelov and Nze demonstrated this in their 2024 paper “A Devil's Bargain: When Generating Income Undermines Investment Returns.”

To summarily paraphrase the legendary Ben Felix, an expert on this topic, “covered call products are neither high-income nor high-Sharpe, and the idea that covered calls generate income is financial bull$hit.”

Is QYLD a Good Investment?

So is QYLD a good investment? Probably not.

While QYLD uses the Nasdaq 100, Global X also offers RYLD for the Russell 2000 (U.S. small- and mid-caps) and XYLD for the S&P 500 (U.S. large caps). All 3 funds work the same way.

These funds seem to be popular among income investors and FIRE folks, but I have yet to see a compelling reason for investors' fascination with these funds. I have to assume most simply aren't looking past the extremely high yield and perhaps don't know what they're buying. There's even an entire community on Reddit dedicated to this thing.

Inexperienced investors seem to have this idea that the “income” and distributions from these expensive funds are free money, or that selling shares of a low-cost index fund like VTI – or even QQQ in this case – to realize gains of an equal amount is somehow inferior to receiving a dividend. As you've now seen, neither of these things is true. This irrational preference of dividends as income is just a well-documented – and admittedly understandable – mental accounting fallacy. Again, I suspect investors unfortunately aren't looking too far past the high yield carrot of these funds before buying in.

First, specific to QYLD, what I haven't even mentioned yet is that the Nasdaq 100 is pretty poorly diversified and is basically a tech index at this point. It is purely non-Financial large cap growth stocks from the NASDAQ exchange. Investors have been chasing recent performance by flocking to Nasdaq 100 funds like QQQ and QQQM simply because the index has beaten the market over the past decade or so, thanks largely to Big Tech.

But the market itself is already over 1/4 tech, and large cap growth stocks are looking extremely expensive relative to history (and relative to Value). Moreover, the valuation spread between Value and Growth is as large as it's ever been. Because of all this, we've got concentration risk and lower future expected returns for large cap growth stocks. Only time will tell, but now may actually be the worst time to buy Growth and the best time to buy Value. Large value spreads have historically preceded its marked outperformance. Alas, all crystal balls are cloudy, but I'd argue that's precisely a good reason not to be concentrated in the NASDAQ 100 Index.

Secondly, dividends/distributions aren't free money. As we looked at earlier, because part of QYLD's assets come from its option selling, its total return is muted, making novice investors feel like it's safe. But this is the wrong way to think about it. Removing its distributions, QYLD's capital appreciation component has actually been negative since inception, and pretty severely so:

QYLD vs. QQQ

At this point, since we're talking about distributions and price appreciation, let's pause the discussion for a second to look at QYLD vs. QQQ in terms of sheer performance. Recall that QQQ is just the plain ol' fund that tracks the NASDAQ 100 Index.

The backtest below will hopefully be eye-opening. Even with QYLD's dividends reinvested, the underlying QQQ has delivered a much greater risk-adjusted (and general) return since QYLD's inception in late 2013 and looking through early 2026:

Some quick important takeaways:

1. QQQ still delivered a significantly greater risk-adjusted return (Sharpe; ratio of return to volatility) even though it was about 50% more volatile than QYLD. Covered call strategists boast about their greater Sharpe ratios, but the argument doesn't even hold water here against the underlying QQQ. The Sortino ratio arguably illustrates this even better, as it only looks at downside risk. QQQ's Sortino ratio was nearly twice that of QYLD.
2. More importantly, notice how the average drawdown doesn't differ much, and both max drawdowns were still significant. Simply put, QYLD does not protect the downside. I'll explain this more in a second. QQQ had a Calmar ratio (ratio of return to max drawdown) much higher than QYLD as well.
3. Similarly, QYLD doesn't get to fully participate in the upside. Notice how the CAGR for QQQ was more than double that of QYLD. I'll explain this later, too.

I usually say backtests don't mean much (i.e. they have little to no bearing on the future), but out of all the ones I've posted on this website, this one is arguably the most telling, the most straightforward, and the most useful for one's future strategy. If it doesn't illustrate why this fund is pretty awful, I don't know what will. What's more, all this poor performance of QYLD comes at 4x the price of its underlying index.

Again, QYLD is effectively selling your upside, distributing that to you as income, and leaving nearly the same downside risk as the underlying. This backtest illustrates that clearly. Put another way, in explosive bull markets, QYLD will severely lag the Nasdaq 100 badly, and in flat or moderately declining markets, QYLD will fare only slightly better than the NDX. This is simply a mathematical characteristic of the call option trade itself.

Another oft-overlooked point here is that covered calls necessarily hinder recovery after a stock market crash, because, once again, QYLD is purposely capping upside potential. Owning QYLD in the March 2020 flash crash, for example, when the Nasdaq 100 dropped suddenly and steeply, meant you fell with the market but not quite as much thanks to your nifty option premium and lower beta, but then didn't get to fully participate in the massive recovery:

I'll resume the discussion and continue explaining the details in the following section.

Continuing the Discussion – More Reasons QYLD Stinks

I can easily think of 2 other portfolios off the top of my head that are safer, cheaper, more diversified, more tax-efficient, and that have had much higher general and risk-adjusted returns, lower volatility, lower excess kurtosis, and smaller drawdowns than QYLD. If one wants a high dividend yield to use as income, I'd think you could think of combinations of dividend funds, high yield corporate bond funds, etc. that would be objectively superior to QYLD in almost every way, such as Portfolio 3 in the backtest I linked. You'd likely even come out ahead after taxes with high-div REITs considering QYLD's high fee. Moreover, its return has even severely lagged income-focused CEF's. I designed a dividend portfolio for income investors here that may appeal to you.

The situation for QYLD is exacerbated in a taxable environment because you're taxed on any taxable distributions, regardless of whether or not you reinvest them. Thankfully, some of QYLD's distributions may be classified as a return of capital, meaning no taxes (until your cost basis is zero), and most of them have indeed been ROC in recent years for QYLD, but this hasn't always been the case during the fund's lifespan, so that preferable tax treatment is by no means guaranteed. Look at 2016, when the fund's ROC was only about 27% and short-term capital gains distributions were about 51%. This was also a wake-up call for many in early 2022, when Global X announced that 100% of QYLD's distributions for 2021 would be classified as – and thus taxed as – ordinary income, not as ROC. Ouch.

I'm a fan of simply selling shares as needed for any “income” needed, which should be mathematically preferable anyway if you don't actually need that income on a monthly basis, as it allows you to leave more money in the market longer.

Thirdly, covered calls cap the upside at the strike price. They're not a free lunch. If the underlying rallies, you don't get to fully participate. Aren't we investing in the market – in any form – because we expect it to go up more than it goes down? Even if income is the goal, why would we want to purposefully stifle the portfolio's growth? This concept is illustrated in the backtest above by the “best year” returns.

As I hinted at earlier, the issue is not QYLD's implementation, but rather simply the inescapable mechanics of covered calls themselves. Novice investors don't seem to understand this, and erroneously think they can just jump to the next shiny covered call object like JEPQ or QQQI to solve the issues, but that's not going to do it.

In total fairness to QYLD, a covered call fund would be nice in a totally flat market, as you'd just float along collecting the premium from writing call options when the underlying isn't doing anything. Granted, the premium would be lower, but you'd be better off than if you were only holding the underlying index that was just moseying along decaying. But we don't see that market environment very often (and we wouldn't expect to), and for the rest of the time leading up to and following that flat period, you'd be underperforming. This type of flat market is even less likely with the Nasdaq-100, which is actually good in terms of the premium received.

Lastly and arguably most importantly, covered calls don't protect the downside. This is probably the one I see QYLD proponents erroneously trying to push most often. In fairness, they simply may not understand how covered calls work. Don't succumb to mental accounting bias; the premium received doesn't mean much if the market crashes. If the underlying drops, so does the fund, along with its distribution yield. Again, you don't have to take my word for it; just look at the clear illustration in the backtest above of the nearly identical drawdowns. Another covered call fund, NUSI, does offer downside protection by buying a protective put option.

I see comments all the time about QYLD being “safe” or that it offers “downside protection.” Neither of these things is true. Global X themselves even claim in the fund literature that “covered call strategies can play a useful role in a portfolio during downturns,” but they sort of gloss over the fact that the drawdowns are typically lower by the precise amount of the option premium received; that cash doesn't really offer any “protection.” Returns from covered call funds like this are asymmetrical, and we would expect them to be – severely capped upside, but nearly the same downside as the underlying index. In statistical terms, this is called negative skewness of returns, and investors typically try to avoid it.

So we're purposefully limiting the upside potential while leaving unlimited downside risk, all in the name of “income.” Intuitively, this should at least strike you as suboptimal.

I personally don't think QYLD's 12% yield is sustainable anyway. So far the fund hasn't had to endure a major crash like 2008 or 2000, or arguably worse, a protracted bear market. Market conditions (a raging bull market for the most part, particularly for Big Tech) have been ideal for these funds in their relatively short lifespans thus far.

In terms of downside protection, there's an objectively better, simpler, cheaper, more tax-efficient solution that existed long before these funds came about: decrease stocks and add bonds. And for those who are holding QYLD because they think bonds suck, consider checking out my brief rant on why bonds are still useful in basically any environment. We'd also want to be more diversified across assets and geographies in general. In short, as the backtest above showed, covered calls are not an efficient way to lower the volatility and drawdowns of a portfolio.

And again, all these undesirable characteristics come at 4x the price of the underlying index.

Suppose you still hate bonds. You can use T-bills, which are literally called the “risk-free asset” and are considered a cash equivalent. They also happen to be a decent inflation hedge because they can be rolled quickly. Let's take the simplest example of a naively-weighted 50% NASDAQ-100 and 50% cash (T-bills) to once again show how one can easily beat QYLD in a simpler, cheaper, more tax-efficient manner:

Notice how we've once again beaten QYLD on every single metric – higher return, lower volatility, more upside captured (best year), lower volatility, much smaller drawdown, and much higher risk-adjusted return.

That means more income, not less, using a simple mix of low-cost index funds. No need for a complex, high-fee, high-yield product. Since that logical leap may not be obvious to some, I'll spell it out explicitly by modeling withdrawals aka “income” for you. Here's $100,000 starting with $1,000 withdrawn monthly over that same period:

Again, this is neither an accident nor bad product implementation. It's a natural byproduct of the inherent inefficiencies of covered calls, which are exacerbated as the holding period increases.

I explained a lot of this stuff in even more detail when I wrote a post on JEPQ, a similar, newer covered call fund also based on the Nasdaq 100..

I've created that 50/50 pie for M1 Finance here if you're interested. I wrote a comprehensive review of M1 and why it's great for income investors here.

Canadians can find the above ETFs on Questrade or Interactive Brokers. Investors outside North America can use Interactive Brokers.

Conclusion

The only appropriate scenario I can see for buying these types of funds is if the investor, for some reason, consciously wants to implement a rolling covered call strategy without handling the logistics of writing the options themselves, in order to generate regular income (from the option writing) that they need every month. Let me put this very simply and straightforwardly. If you do not need that regular income every single month to pay for your expenses, there is no reason for you to buy funds like these. More generally, I'd even say if you are reinvesting its dividends, there is no reason for you to buy funds like these.

But if income is the concern, I'd say just go with CEF's, or again, a combination of dividend stocks and high-yield bonds. “Income” is overrated anyway. I'd be more likely to go with something like SWAN or SPD and just set up an automatic monthly transfer from the brokerage account that sells shares for me; there's my “income.” In the interest of full disclosure, I'm not a dividend investor anyway, and I'd rather just sell shares as needed, so these types of yield-focused strategies don't appeal to me regardless. I'd rather create my own dividend when I want to. But after looking at the objective facts, I still can't understand why anyone would buy these funds.

Again, we can construct a demonstrably superior strategy with even the simplest, naive mix of 50% NASDAQ-100 and 50% T-bills.I've created that pie for M1 Finance here if you're interested. I wrote a comprehensive review of M1 and why it's great for income investors here.

Ironically, if I were forced to use these funds, I'd certainly go with the greater diversification of XYLD with a dash of RYLD to get exposure to the entire U.S. market instead of the more popular QYLD that narrows in on the NASDAQ 100. Investors have gravitated toward the latter due to recency bias and performance chasing. This is both irrational and hypocritical, as they're simultaneously citing QYLD's “safety” and “protection.” One will inarguably get comparatively more of those things with the broader index that XYLD uses (the S&P 500). Some are buying QYLD on margin, which doesn't make much sense to me. Others are even using QYLD as a savings account “replacement” and are reinvesting the dividends, which is nonsensical.

There's no free lunch outside of diversification. If you are reducing risk with expensive option hedging strategies, you are by definition also accepting lower expected returns. But as we've seen, QYLD doesn't even do a good job of that. Again, covered calls are simply not an efficient way to de-risk a portfolio.

In fairness, with bonds entering a headwind and stock valuations at all time highs, options strategies may indeed prove fruitful going forward for some unknown time period for the income investor with a short time horizon; but I'd still submit that it's highly unlikely we'd see a flat market over the long term, and I'd still prefer something with downside protection like NUSI. Only time will tell. Covered call funds are also not the worst strategy I've seen to try to generate income.

Do you own any of these income-focused option strategy ETFs like QYLD, RYLD, XYLD, JEPI, HNDL, NUSI, DIVO, JEPQ, QQQI, etc.? Let me know in the comments.

QYLD FAQ's

Lastly, here are some frequently asked questions about QYLD.

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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.