QYLD is a Nasdaq 100 Covered Call ETF. The ETF generates income through covered call writing and offers monthly distributions. The distribution yield on QYLD is nearly 1% per month. As an example, a $10,000 investment in QYLD would provide about $100/month most months.



Now, before you get too excited, let’s talk about how QYLD works:

Down Market: In the illustrative example below, the Nasdaq 100 index ended the month below the strike price. So, QYLD which sold the call option would potentially benefit from the premium received. This may offset some or all of the decline in the underlying equity holdings.



Flat Market: If the index price has not changed at the end of the month, QYLD keeps the money it collected from selling the monthly index call and the Fund still owns the underlying equities.



Up market: If the index price rises at the end of the month, potential gain will be limited since the Fund sold a call option at a predefined strike price. As the index rises above the strike price, the Fund still keeps the money collected from selling the monthly index call option, but won’t benefit from the entire increase in the index value.




So far this sounds pretty good, but let’s look at how it performed in the real world:
QYLD Purchase Date: Jan 1, 2014 (creation of QYLD)Initial Balance: $10,000Final Balance: $8,442 (without dividends reinvested)



As we can see, the underlying QYLD lost $1,558 over the course of 81 months ($10,000 - $8,442)

However, QYLD also paid you dividends every single month (almost 1% per month, as mentioned earlier). How much did QYLD pay you over the past 81 months? $6,023!

So your total is $8,442 + $6,023 = $14,465, which is a gain of $4,465 over your original investment.


*as of September, 2020

As you can see above, this is an income generation strategy, which is great if you’re looking to increase your monthly income. It offers income (not always 1%) every single month. The money will show up in your account without you doing anything for this income.


A (possible) Improved QYLD strategy.
While income is great and if income generation is your primary objective, then QYLD by itself may serve it’s purpose. However, an alternative option may be to split half of your investment between QYLD and SPY. SPY is an ETF which represents the S&P 500 index. The S&P 500 "aims to measure the stock performance of 500 large companies listed on stock exchanges in the United States”


Let’s try our same example as before, but instead of putting $10,000 in QYLD, we split the $10,000 between the SPY and QYLD, placing $5,000 in each.
QYLD/SPY (50/50%) Purchase Date: Jan 1, 2014 (creation of QYLD date)Initial Balance: $10,000Final Balance: $12,528 (without reinvesting dividends)



This one feels a bit better, as your underlying value does not erode. In fact, you end up with $2,528 extra without reinvesting your dividends.

* as of September, 2020

In this case, you ended up with $4,285 from dividends alone!

The total result in this case is a whopper of $16,813 ($12,528 + $4,285)
This is a gain of $2,348 vs the standard 100% QYLD strategy. However, as you can see from the above, the 50/50 QYLD/SPY split offers less monthly income than the original QYLD strategy.


If you need more monthly income, it may make more sense to stick to the original QYLD investment. If you can use less monthly income in exchange for potential greater portfolio growth, then the 50/50 split may make sense. The best option depends on your personal situation and what you’re trying to accomplish.


You can purchase QYLD and SPY at most brokerages. You can read more about QYLD here: https://www.globalxetfs.com/funds/qyld/


Happy investing!