Covered Call ETFs

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Maximize cash flow with BMO covered call ETFs

BMO ETFs launched its first covered call ETF in 2011 and is now the largest provider in Canada1, managing ETFs and covered call strategies across market cycles.

 

BMO covered call ETFs balance between cash flow and participating in rising markets by selling out-of-the-money call options on about half of the portfolio. This approach allows to capture the modest growth and generate cash from two sources: regular dividends and premiums from call options.

How does a covered call ETF strategy work?

A call option allows the owner to buy the underlying stock at a preset price over a specific period. Covered call strategies involve holding a security and selling a call option on it. By selling the option, the portfolio earns a premium, providing extra cash flow. The strategy offers risk management as the premium helps soften losses during downturns. The trade-off for investors is that the strategy may limit gains on the portion with a covered call.

Benefits of covered call ETFs

Higher yield

Earn added yield from the option premiums, along with dividend income from the underlying asset.

Lower costs

Experience more efficient trading on exchanges and take advantage of relatively lower fees compared to implementing the strategy on your own.

Convenience

With an ETF, you get the benefit of holding one security instead of operating a call writing program on your own.

Tax efficiency

The cash flow generated from writing call options on securities is generally taxed as capital gains2.

Lower volatility

Covered call strategies have historically reduced portfolio volatility, while providing similar exposure to the underlying portfolio with lower risk3.

Explore our covered call ETFs

Enhance your cash flow and growth potential across a range of strategies covering various regions and sectors with our offering of covered call ETFs.

High dividend

Gain access to diversified portfolios of high dividend-paying companies, covering both domestic to global markets, enhanced with a covered call option overlay.

View High dividend ETFs

Sector-specific

Tailor your portfolio with sector-specific exposure, including Canadian and U.S. banks, utilities, health care, energy, and technology companies, complemented by a covered call strategy.
View Sector-specific ETFs

All-in-one

An all-in-one asset allocation solution that provides instant diversification across a basket of BMO covered call ETFs with no double dipping on fees.
View All-in-one ETFs

Index-focused

Get broad exposure to companies in the U.S. with an added covered call option overlay.
View Index-focused ETFs

Meet the investment team

Chris Heakes

Chris Heakes, CFA, M.Fin

Director, Portfolio Manager

Chris joined the BMO ETF portfolio management team in 2011, and focuses on factor-based equity and derivative-overlay portfolios, including but not limited to BMO’s Low Volatility, Dividend, and Covered Call equity ETF suites. His prior investment experience includes a role as a quantitative equity research associate, and work in investment funds product and client support. Chris holds a Masters of Finance from the University of Toronto, Rotman School of Management (Dean’s List), where he studied investments, including derivatives and derivative pricing. Chris also holds a Bachelor of Arts degree from the University of Waterloo with studies in History and Mathematics and the CFA designation.

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Charles Lucien Myssie

Charles-Lucien Myssie, CIM

Portfolio Manager, Exchange Traded Funds

Charles joined the BMO ETF team as a Portfolio Manager for derivative and equity-based portfolios. He brings over two decades of experience in the investment industry. Prior to joining BMO, Charles served as Portfolio Manager-Trader for seven years, where he managed equity derivatives value-added strategies and helped build the equity derivatives book. More recently, he played a key role as a derivatives sales-strategist with CIBC capital markets covering institutional clients such as pension plans, asset managers and real money accounts for the Quebec market. Charles holds a master degree in Econometrics from the University Paris X, France.

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Resources and documents

Definitions

Strike Price: is the price at which the underlying security can be either bought or sold once exercised.

 

Exercise: to put into effect the right to buy or sell the underlying security that is specified in the options contract.

 

Dividend Yield: annualized yield generated from the underlying dividend paying companies.

 

Option Premium: it is the total amount that an investor pays the call writer for an option contract.

 

Out-of-the-Money: how far the strike price is set relative to the underlying stock price.

 

At the Money: have a strike price that is equal to the current market price of the underlying holding

 

Time Decay: is a measure of the rate of decline in the value of an options contract due to the passage of time.

 

Volatility: measures how much the price of a security, derivative, or index fluctuates. The most commonly used measure of volatility when it comes to investment funds is standard deviation.

 

Covered: the percentage of the portfolio that call options are written on.

 

Call: a call option gives the holder the right to buy a stock

Get started

You can purchase BMO ETFs through your direct investing account with your online broker, or through your investment advisor.

CHOOSE A PLATFORM

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Covered call FAQs

What is a covered call ETF?
What is the benefit of BMO Covered Call strategy?
What is a call option premium?
What is the mechanics of BMO covered calls?
What type of investor is typically interested in covered call ETFs?
Show me an example on how a portfolio manager would write call options.
Why does BMO sell options with only 1 to 2 months to expiry?
How far out of the money are BMO Covered Calls ETFs?
What type of market environment is good for Covered Calls?
What happens when a stock rises significantly within the portfolio?
What happens when a stock declines significantly within the portfolio?

Sources

Footnotes

*Changes in rates of exchange may also reduce the value of your investment.

 

1Source: Morningstar – Data as May 31, 2024.

 

2As compared to an investment that generates an equivalent amount of interest income.

 

3 Covered Call ETF Methodology

Disclaimers

Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the ETF Facts or prospectus of the BMO ETFs before investing. Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated.

 

For a summary of the risks of an investment in the BMO ETFs, please see the specific risks set out in the BMO ETF’s prospectus. BMO ETFs trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.

 

BMO ETFs are managed by BMO Asset Management Inc., which is an investment fund manager and a portfolio manager, and a separate legal entity from Bank of Montreal.

 

This material is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Particular investments and/or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.

 

“BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.